U.S. Sen. Elizabeth Warren at a 2019 campaign rally in Seattle. (GeekWire File Photo / Todd Bishop)

Sen. Elizabeth Warren (D-Mass.) and Sen. Tina Smith (D-Minn.) are pressing U.S. bank regulators to investigate the ties between the banking industry and cryptocurrency firms including Farmington, Wash.-based Moonstone Bank.

“Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access to banks,” the senators wrote 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 reference a Nov. 23 report in the New York Times that revealed how Moonstone received $11.5 million in venture funding from Alameda Research, a sister company of failed cryptocurrency exchange FTX. They also note that Jean Chalopin, who is the head of Moonstone’s parent company FBH, is also the chair of Bahamas-based Deltec Bank. Deltec’s most well-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 the FTX investment.

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

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

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

Before it started raising capital to transform into a tech-focused bank, Farmington had just three staff members and was the 26th-smallest bank in the U.S. out of 4,800, The New York Times reported. Its net worth was $5.7 million, according to the Federal Deposit Insurance Corporation, and it did not offer online banking or credit cards.

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

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

Lawmakers are set to hold two hearings next week over the collapse of FTX. The company’s founder Sam Bankman-Fried said on Twitter Friday that he would appear before the congressional committees.

Warren and Smith closed the letter with a list of questions, probing the bank regulators “to better understand the scope of the banking system’s 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 arm participated in a $70 million 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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