On Thursday, the Federal Reserve took action against a bank based in the United States for its ties with crypto. Reportedly, the Federal Reserve has cracked down on Farmington State Bank targeting a recent stablecoin strategy taken over by them.
According to local media reports, the Fed has alleged that the bank took on a stablecoin strategy without notifying supervisors or gaining approval. Furthermore, the government entity said that it approved Farmington’s application to become a bank holding company in 2020.
However, at the time it imposed certain conditions on the bank and its main shareholder, Jean Chalopin. Those conditions prevented the bank from changing its business plan and taking certain actions without approval.
Now, Farmington allegedly violated those conditions last year when it began to work with a third party on IT infrastructure for a public stablecoin. Reportedly, the bank would have received 50% of mint and burn fees on certain stablecoins. However, the report did not indentify any third-party and stablecoin in question.
Addditionally, past announcements suggest that Farmington, operating as Moonstone Bank at the time, partnered with Fluent Finance on its US+ stablecoin in 2022. Sources reveal that this appears to be a fairly minor stablecoin, as its reserve data suggests that it has just $194,286 of backing. The same amount is presumably in circulation.
Notably, the bank has also publicly accepted the news and said that it will wind down operations. The bank added that it has consented to the latest order from the Federal Reserve.
In its notice from Thursday, the bank said it would liquidate and wind down operations. It added that the Bank of Eastern Oregon would purchase its assets, assume its deposits in a transaction and that regulatory filings have been received.
Notably, Farmington previously attracted attention in January when it discontinued its crypto services and returned to its current role as a community bank. That change also saw the bank rebrand from Moonstone Bank to Farmington State Bank.
The reports from January highlighted the bank’s connections to FTX founder Sam Bankman-Fried, whose assets were seized through the bank earlier that month. Those asset seizures were not acknowledged in the Federal Reserve’s latest action.
It is worth noting that the Fed also announced a new framework to increase the supervision of the US banking sector particularly involved in crypto and stablecoin activity. The framework focuses on crypto, distributed ledger technology, as well as “technology-driven partnerships with nonbanks to deliver financial services to customers.”
Additionally, the US banking sector has been in close watch of the regulators especially after the SVB and Signature banking collapse earlier this year which sent shock waves through crypto industry.
However, some entities have also called out the central bank for being anti-crypto. The Signature bank suggested one of the top three banks was closed down by the Feds on the pretext of “systemic risk” in order to stop the losses and prevent a huge catastrophe. The bank had also called out the central bank for its anti-crypto behavior.