FTX Might Have Ties to Banks? Now That's Reputation Risk

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Hey, this is Mark Treichel with another episode of With Flying Colors. The FTX fiasco, , is amazingly interesting. , it's kind of like driving by a. Crash on the highway. , and you hope that nobody, you know, was involved and lost any money or lost any lives. But, , there's a, a wonderful quote by, , billionaire, ,Warren Buffet who said, only when the tide goes out do you discover who's been swimming naked.

Well, , that quote's been used a lot on different articles and different podcasts and different news articles that I've seen relative to this FTX situation. But today I want to talk about reputation, risk, and offering crypto to your members. So, , there's an article in American Banker dated yesterday by Claire William.

And I would like to discuss the contents of that letter here on this podcast. The article is called F D I C, looking closely at Farmington State Bank in the FTX fiasco, the Federal Deposit Insurance Corporation and the Federal Reserve are looking closely at Farmington State. A small bank connected to the failed crypto exchange ftx.

According to Acting FDI Seed chair Marty Greenberg Ft. FTX bankruptcy pause have revealed that Alameda Research, a hedge fund, affiliated with the exchange invested 11.5 million in the tiny Farmington State Bank, which now does business as Moonstone Bank in Washington State. That's a significant.

Particularly get this for this bank, which has about 21.7 million of assets at the as of the second quarter and has only about 10 million in deposits for most of the decades. So this is extremely small for a bank, , and would be considered small on credit union standards. Article goes on to say that Revelation has spurred questions about Ft.

X's reach within the banking system and Sam. Bankman Frees or SBF as he's been known to be called plans for it in the future, previously thought to be insulated from crypto turmoil. Bank regulators, including Gruenberg, have told Congress that their caution towards the crypto market has helped keep the traditional financial sector safe as crypto markets whipsaw.

Greenberg in a press conference issued after the release of the agency's quarterly banking profile, said that the FDIC and the Fed are scrutinizing the Farmington situation. He's also considering other ways FTX might have ties to the banking sector. 

There's a lot of review as well that's going on withFTX. Gruenberg said, we're learning more about the operations of that company and whether there might be any additional connections to the banking system. We're not aware of them now, but there's a careful review ongoing. We'll see what it. Reveal. It's unclear to what extent regulators were involved in Alameda's investment into Farmington State Bank.

Farmington was acquired by a holding company led. Jean Jin, the owner of Dell Tech Bank, whose best known client is the stablecoin issuer tether in 2020. After that, it applied and was approved by the Federal Reserve Bank of San Francisco in 2021. Then Alamia.

Alameda acquired a stake of a little less than 10% than the bank just below the threshold for regulatory approval, huh? Just below the level for regulatory approval trying to stay off the radar in a press release. The bank said it has remained in close communication with our regulators. Throughout its business evolution and has built a robust processes, programs, and controls to ensure all of our activities comply with all applicable laws and regulations.

It says that Alameda has only a non-controlling stake. And that FTX unwinding has unfairly affected its reputation. That's, so that's why I opened with reputation risk. Reputation risk, as you know, is something that NCUA examines you on... be careful offering apps that allow your members to buy crypto - yes it is buyer beware but they may blame you.  Is the risk worth the reward?

marktreichel.com

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