Senators Ask Regulators to Investigate Banking and Crypto Ties, Citing Washington State Bank – GeekWire

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US Senator Elizabeth Warren at a 2019 campaign rally in Seattle. (File Photo GeekWire/Todd Bishop)

Sen. Elizabeth Warren (D-Mass.) and Sen. Tina Smith (D-Minn.) are urging U.S. banking regulators to investigate links between the banking industry and cryptocurrency companies, including Moonstone Bank, based in Farmington, Washington.

Banks’ relationships with crypto firms raise questions about the security and soundness of our banking system and highlight potential loopholes that crypto firms could attempt to exploit to gain additional access to banks, the analysts wrote. senators in letters sent Wednesday addressed to the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.

Warren and Smith refer to a Nov. 23 report in The New York Times that revealed how Moonstone received $11.5 million in venture capital funding from Alameda Research, a sister company to the crypto exchange. bankrupt currency FTX. They also note that Jean Chalopin, who heads parent company Moonstones FBH, is also chairman of Bahamas-based Deltec Bank. Deltecs’ best-known client is Tether, a crypto company with $65 billion in assets.

Moonstone Bank, formerly known as Farmington State Bank, was acquired in 2020 by FBH. Farmington State Bank changed its name just before FTX’s investment.

By acquiring Farmington, Moonstone received a banking charter, a business license required for US financial institutions handling deposits and providing other banking-like services. Moonstone now describes itself as a chartered digital bank, employs several people in the Seattle area, and is based in Bellevue, Washington, according to its LinkedIn page.

Banking experts have previously told GeekWire that bank acquisitions require significant due diligence from regulators. Since Moonstone was partly foreign-owned and involved in crypto, the deal should have raised more regulatory flags, they said.

Farmington has its origins in the small town of Farmington, Washington near the Washington-Idaho border. The lender, founded in 1887, previously provided agriculture-focused loans.

Before it began raising capital to transform itself into a technology-focused bank, Farmington had just three employees and was the 26th smallest bank in the United States out of 4,800, The New York Times reported. Her net worth was $5.7 million, according to the Federal Deposit Insurance Corporation, and she did not offer online banking or credit cards.

The Times reported that in the third quarter of this year, bank deposits increased nearly 600% to $84 million. The majority of the increase came from four new accounts, according to the Times.

Warren has long been a crypto skeptic. She has repeatedly warned that the fledgling industry is ripe for financial crimes, dangerous to consumers and a threat to the environment due to the amount of energy required to mine bitcoin and other digital assets. .

Lawmakers are scheduled to hold two hearings next week on FTX’s collapse. Company founder Sam Bankman-Fried said on Twitter on Friday that he would appear before congressional committees.

Warren and Smith closed the letter with a list of questions, polling banking regulators to better understand the extent of banking systems’ exposure to the crypto industry and how banking regulators currently assess crypto-bank relationships.

FTX has a connection to another Seattle-area company: Last year, its venture capital arm participated in a $70 million seed round in Seattle-based Protego Trust Bank, a crypto bank that was granted a conditional banking charter in February 2021. Protego was not mentioned in the senators’ letter. .

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