The Federal Reserve Board has taken action against Farmington State Bank, located in Farmington, Washington, and its parent company FBH Corporation. This action comes after Farmington changed its business plan without proper notification and approval from bank supervisors.
As a result, the Federal Reserve has stepped in to ensure the orderly winding down of the bank’s operations, with a focus on safeguarding depositors and the Deposit Insurance Fund.
Unauthorized Stablecoin Project Raises Concerns
Farmington State Bank had been involved in an unauthorized operation to set up a stablecoin project, meaning that they were working on creating their own type of digital currency linked to the value of traditional assets.
This strategy shift reportedly violated prior agreements made with regulatory authorities. The bank began collaborating with a third party on building the technology necessary for issuing stablecoins to the public, with Farmington set to earn a share of the fees generated from these stablecoins.
Moreover, the issue at hand is that Farmington State Bank failed to inform its supervisors about this significant transition in business strategy. The bank had agreed not to engage in such activities without explicit approval.
The consequences for Farmington Bank are substantial. The enforcement action restricts the bank and its parent company, FBH, from making dividends or capital distributions, dissipating cash assets, and participating in certain activities without prior approval from their supervisors.
Farmington State Bank Responds to Federal Reserve’s Measure
In response to the Federal Reserve’s action, Farmington State Bank has agreed to comply with the order. The bank claims to have received all necessary regulatory approvals for the assumption of deposits and the acquisition of assets by the Bank of Eastern Oregon. This transition is anticipated to conclude by August 31, 2023.
It’s worth mentioning that Farmington State Bank, operating previously as Moonstone Bank, had previously attracted attention due to its association with crypto industry figures. The bank’s involvement with digital assets and cryptocurrency-related activities led to regulatory concerns and subsequent actions by the Federal Reserve.
In January, Farmington made a shift away from its crypto-related efforts, reverting to a more traditional banking role. This move was attributed to evolving regulatory dynamics in the crypto sector. The bank also underwent a name change to Farmington State Bank during this transition.