FTX owned an $11.5 million stake in a tiny rural bank in Washington state with just 3 employees, bankruptcy hearing shows

* Farmington State Bank had 3 staff and was the 26th-smallest bank in America out of a total 4,800.

* Then FTX bought an $11.5 million stake in the bank, it has emerged during FTX's bankruptcy case.

The town of Farmington has just 146 residents, and is so small that Google Street View doesn't cover the whole town.

For a decade, Farmington's bank held around $10 million in deposits. In the third quarter this year, deposits jumped to $84 million – 85% of which came from just four accounts, according to FDIC data cited by the Times.

Online, the bank now appears as "Moonstone Bank," a name which was trademarked a few days before FTX's investment. Moonstone doesn't mention cryptocurrency, but does say it wants to "support the evolution of next generation finance."

Questions are being asked over how FTX got federal approval to buy its stake in Farmington. Banking veterans told the New York Times that it was hard to believe regulators would have knowingly allowed the crypto firm to do so.

5 or 6 years ago I commented to my husband … am I dreaming or are there as many little banks as there are corner pharmacies? We were just out driving. It made me wonder what was going on then. This is a puzzle piece. So how many FTX like currencies are there?
With only a third of the population working, all of these banks cannot have legit accounts.
Take a drive through any mid size city and see what you think.
Hubby thought it was a weird observation, but these are many, many banks… it doesn’t make sense.

Many states, particularly in the West and South, have had numerous community banks. Before 1990, many states restricted or prohibited branch banking. As rural areas shrank in population, farming and ranching operations grew bigger, fast food chains largely replaced the independent restaurant, and retail business became more dominated by giants like Wal-Mart and Home Depot, the lending market for small banks with one or two offices and limited capital shrank. Often, banks that had been owned by the same family for two or three generations did not have children who wanted to get into banking. As a result, these small banks have been acquired, not usually by a giant like Citibank or Chase, but by a regional bank, perhaps based in a larger town, perhaps like Boise, Lubbock, or Chattanooga, or investors who may want to move the charter to a larger city.

You could see that perhaps an elderly bank owner would jump at an offer of maybe five times book value for his stock. Once the check is in hand, it's off to maybe Cabo San Lucas or a Caribbean cruise. It is likely that FTX used a nominee person or shell corporation to acquire the bank. The state banking department, the FDIC, and/or the Federal Reserve did not drill down on this acquisition.

Small banks were used for money laundering in the past. H.K. Beebe, a Louisiana banker, was notorious for a "rent-a-bank" scheme where he would acquire community banks through nominees and launder drug and gambling money through his banking chain. Congressman Dan Rostenkowski and Hugh Rodham (Hillary Clinton's father) owned a bank in suburban Chicago to launder Mafia money and political payoffs. It is likely FTX was using this rural bank for similar purposes.

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