Federal Reserve Takes Action Against Farmington State Bank

Enforcement Action Announced

The Federal Reserve Board, in collaboration with the Washington State Department of Financial Institutions, has initiated an enforcement action against Farmington State Bank. This decision stems from the bank's unauthorized alterations to its business strategy in 2022, notably failing to notify and seek approval from the Federal Reserve.

Unauthorized Business Plan Change

Farmington State Bank, which was previously known as Moonstone, deviated from its approved business plan by shifting its focus towards digital banking services and digital assets. This strategic pivot was executed without the required notifications to regulatory authorities, raising significant concerns. Such changes are critical as they can impact the financial stability and regulatory compliance of banking institutions.

Financial Transactions with Alameda Research

The bank's parent company, FBH Corporation, received substantial funding of approximately $11.5 million from Alameda Research, a firm associated with FTX, in March 2022. This financial transaction drew the attention of regulators due to its potential implications on the bank's operations and alignment with its strategic goals.

Implications for Financial Institutions

This enforcement action underscores the importance of adhering to regulatory requirements when altering business strategies, especially in the realm of digital banking and assets. Financial institutions are reminded of the necessity to maintain transparency and compliance to avoid similar regulatory interventions.

By ensuring adherence to regulatory frameworks and proper communication with authorities, banks can safeguard their operations and maintain trust with stakeholders. This case serves as a crucial reminder of the regulatory landscape's role in the evolving financial sector.