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> Its then-president, John Widman, told the newspaper that it had stopped making mortgage loans because the paperwork was too much effort. > Its single branch

> Its then-president, John Widman, told the newspaper that it had stopped making mortgage loans because the paperwork was too much effort. > Its single branch had three employees until this year, and didn't offer online banking or even credit cards. It instead specialised in agricultural loans to farmers. > 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. > The town of Farmington has just 146 residents, and is so small that Google Street View doesn't cover the whole town. I mean, it definitely looks like they were looking for a tiny, out-of-the-way place to do shady stuff. That said (and this is a rookie question for you financial crime geeks out there): Why buy a bank? If you’re a criminal and your goal is to launder money, what does owning a bank do that owning a (for example) car wash or funeral home or laser tag venue doesn’t? Is it purely a scale thing? Given all the regulatory hoops you’d have to jump through in order to buy a bank, I’d think there would be other ways to achieve the same scale with less oversight. Also, if you’re going to buy a bank, I get why you’d want to buy a small one (smaller purchase price and fewer headlines). But wouldn’t a sudden order-of-magnitude increase in assets or loans made (or whatever) set off a ton of red flags at the SEC, FDIC, and various other federal and state agencies?

fallingknife 4y ago
For one thing, a bank is necessary to issue debit cards, which is a nice way for crypto exchanges to bring in exorbitant fee income. Owning one would take away the scrutiny that most 3rd party banking partners would insist on.
- deleted 4y ago
  [deleted]
chiefalchemist 4y ago
> But wouldn’t a sudden order-of-magnitude increase in assets or loans made (or whatever) set off a ton of red flags at the SEC, FDIC, and various other federal and state agencies? Apparently, not. So then we should be asking, why not? Why did the SEC, FDIC, etc. look the other way?
- belltaco 4y ago
  https://prospect.org/power/congressmembers-tried-to-stop-secs-inquiry-into-ftx/ https://prospect.org/power/congressmembers-tried-to-stop-sec...
- cratermoon 4y ago
  > Why did the SEC, FDIC, etc. look the other way? I dunno, maybe we could ask the victims of the 80s/80s Savings & Loan collapse and the 2008 financial crisis? Same song, 3rd verse.
cortesoft 4y ago
It isn't necessarily criminal desires... there are a lot of financial things that require a banking license, and they aren't easy to get. This is why most fintech companies end up partnering with a bank in order to do things like take deposits and give credit. It might be easier to just buy one if you want to do bank things.
throwup 4y ago
> Why buy a bank? Applying for a banking license is time-consuming. Buying a local bank is a comparatively quick way to end-run around that process. In and of itself it's not a sign of anything shady - buying a bank is a pretty common part of the business plan for fintech startups that don't want to sit around for years waiting for government approval.
- cormacrelf 4y ago
  The same thing is true of many extremely normal companies, which are sold to foreign companies wanting to list themselves on American stock exchanges.
- aliqot 4y ago
  Compounding pharmacies work like this too. There are people like Mikki the gambler (Spencer Cornelia's channel has a lengthy interview about this, with proof) who get the licenses and then sublet them in bulk.
- FormerBandmate 4y ago
  SoFi bought Golden Pacific Bank, a tiny, nothing bank, and runs their entire infrastructure off of its charter now. FTX was trying to expand into legitimate financial services, buying this bank up would have been a great way to do that if they were an actual financial company That being said, SoFi bought the entirety of Golden Pacific Bank for $23 million, and they were 20x the size of this bank (as well as having actual mortgage infrastructure and a wide variety of products). Buying 10% of a bank with only $10 million in assets for $12 million is very weird, at the very least it’s a horrible deal
  - jbverschoor 4y ago
    Why? He won't "officially" control it, but has a lot of influence (see all the other briberies, I mean donations, he did). SBF is one sneaky bastard that knows very well what he's doing.
    - 22289d 4y ago
lordnacho 4y ago
I got suggested to buy a bank once. Nothing shady about it, the fact that it's a bank means they've got an insured deposit base, which is great for number of investment purposes. Why it would be easier to buy a bank than to get a license I never got an answer to. Surely the authorities would not leave a loophole? But I don't know.
- mcculley 4y ago
  There are many situations where buying an existing business is cheaper and faster than dealing with the regulatory regimes for opening a new business (e.g., gas stations, restaurants, liquor licenses). I don’t see why banks would have less of an advantage there.
- beefield 4y ago
  I don't think there are any loopholes in that sense. I can easily imagine you preferring to buy a ready team with existing infrastructure for regulatory reporting than building one from scratch. Especially if your financial background is from prop trading and you despise - while having zero clue about - how banks actually manage their risk and communicate with regulators.
- bombcar 4y ago
  It’s faster mainly. Bank charters take time, buying a bank takes money.
- 1123581321 4y ago
  Part of it is that both regulators and competitors simply don’t want many more bank licenses in the US. So they won’t make the issue process easy even though analysis and background check capabilities have improved so significantly. An analogy might be the old taxi medallion regulation in New York that had limiting the number of taxis as a goal in addition to qualifying cab owners and drivers. It’s a frustrating situation because an organization unworthy of a license like FTX can just buy one anywhere in the country, but a worthy organization working locally can’t start a new bank, because they’d likely have to buy one too far away. Anyone who believes there should be more small banks is just out of luck.
olalonde 4y ago
> Why buy a bank? My guess is that it's because it's very, very difficult for Bitcoin/crypto companies to maintain bank accounts due to overly strict AML compliance departments. Even Tether, which controls billions of dollars and is one of the largest crypto companies, was unbanked for some of its existence. I assume that FTX wanted to avoid that.
jbverschoor 4y ago
> Why buy a bank? Same reason you do a reverse merger
georgyo 4y ago
> what does owning a bank do that owning a (for example) car wash or funeral home or laser tag venue doesn’t? Is it purely a scale thing? All three of those are very much focusing on _cash_ transactions. It would be difficult for any of those to hide wire fraud. As all of those are references to TV shows revolving around drugs. Drug sales are usually done in cash. If you have over tens of thousands in illicit cash, you need a cash business to mix those transactions in. Clean cash + dirty cash = plausibly clean money. Did your laser tag place really take in 50k in cash a week? That is a harder question to prove than you don't work, where are you getting 25k a week from? You'll need good book keeping. However crypto investments don't have any cash transactions. You need to make and recieve wire transactions. These transitions are likely legal but still questionable, and most banks will terminate you if you have questionable transactions. Owning the bank means you don't need to answer a lot of these questions like "where did this money come from?"

fallingknife 4y ago

For one thing, a bank is necessary to issue debit cards, which is a nice way for crypto exchanges to bring in exorbitant fee income. Owning one would take away the scrutiny that most 3rd party banking partners would insist on.

deleted 4y ago
[deleted]

chiefalchemist 4y ago

> But wouldn’t a sudden order-of-magnitude increase in assets or loans made (or whatever) set off a ton of red flags at the SEC, FDIC, and various other federal and state agencies? Apparently, not. So then we should be asking, why not? Why did the SEC, FDIC, etc. look the other way?

belltaco 4y ago
https://prospect.org/power/congressmembers-tried-to-stop-secs-inquiry-into-ftx/ https://prospect.org/power/congressmembers-tried-to-stop-sec...
cratermoon 4y ago
> Why did the SEC, FDIC, etc. look the other way? I dunno, maybe we could ask the victims of the 80s/80s Savings & Loan collapse and the 2008 financial crisis? Same song, 3rd verse.

cortesoft 4y ago

It isn't necessarily criminal desires... there are a lot of financial things that require a banking license, and they aren't easy to get. This is why most fintech companies end up partnering with a bank in order to do things like take deposits and give credit. It might be easier to just buy one if you want to do bank things.

throwup 4y ago

> Why buy a bank? Applying for a banking license is time-consuming. Buying a local bank is a comparatively quick way to end-run around that process. In and of itself it's not a sign of anything shady - buying a bank is a pretty common part of the business plan for fintech startups that don't want to sit around for years waiting for government approval.

cormacrelf 4y ago
The same thing is true of many extremely normal companies, which are sold to foreign companies wanting to list themselves on American stock exchanges.
aliqot 4y ago
Compounding pharmacies work like this too. There are people like Mikki the gambler (Spencer Cornelia's channel has a lengthy interview about this, with proof) who get the licenses and then sublet them in bulk.
FormerBandmate 4y ago
SoFi bought Golden Pacific Bank, a tiny, nothing bank, and runs their entire infrastructure off of its charter now. FTX was trying to expand into legitimate financial services, buying this bank up would have been a great way to do that if they were an actual financial company That being said, SoFi bought the entirety of Golden Pacific Bank for $23 million, and they were 20x the size of this bank (as well as having actual mortgage infrastructure and a wide variety of products). Buying 10% of a bank with only $10 million in assets for $12 million is very weird, at the very least it’s a horrible deal
- jbverschoor 4y ago
  Why? He won't "officially" control it, but has a lot of influence (see all the other briberies, I mean donations, he did). SBF is one sneaky bastard that knows very well what he's doing.
  - 22289d 4y ago

lordnacho 4y ago

I got suggested to buy a bank once. Nothing shady about it, the fact that it's a bank means they've got an insured deposit base, which is great for number of investment purposes. Why it would be easier to buy a bank than to get a license I never got an answer to. Surely the authorities would not leave a loophole? But I don't know.

mcculley 4y ago
There are many situations where buying an existing business is cheaper and faster than dealing with the regulatory regimes for opening a new business (e.g., gas stations, restaurants, liquor licenses). I don’t see why banks would have less of an advantage there.
beefield 4y ago
I don't think there are any loopholes in that sense. I can easily imagine you preferring to buy a ready team with existing infrastructure for regulatory reporting than building one from scratch. Especially if your financial background is from prop trading and you despise - while having zero clue about - how banks actually manage their risk and communicate with regulators.
bombcar 4y ago
It’s faster mainly. Bank charters take time, buying a bank takes money.
1123581321 4y ago
Part of it is that both regulators and competitors simply don’t want many more bank licenses in the US. So they won’t make the issue process easy even though analysis and background check capabilities have improved so significantly. An analogy might be the old taxi medallion regulation in New York that had limiting the number of taxis as a goal in addition to qualifying cab owners and drivers. It’s a frustrating situation because an organization unworthy of a license like FTX can just buy one anywhere in the country, but a worthy organization working locally can’t start a new bank, because they’d likely have to buy one too far away. Anyone who believes there should be more small banks is just out of luck.

olalonde 4y ago

> Why buy a bank? My guess is that it's because it's very, very difficult for Bitcoin/crypto companies to maintain bank accounts due to overly strict AML compliance departments. Even Tether, which controls billions of dollars and is one of the largest crypto companies, was unbanked for some of its existence. I assume that FTX wanted to avoid that.

jbverschoor 4y ago

> Why buy a bank? Same reason you do a reverse merger

georgyo 4y ago

> what does owning a bank do that owning a (for example) car wash or funeral home or laser tag venue doesn’t? Is it purely a scale thing? All three of those are very much focusing on _cash_ transactions. It would be difficult for any of those to hide wire fraud. As all of those are references to TV shows revolving around drugs. Drug sales are usually done in cash. If you have over tens of thousands in illicit cash, you need a cash business to mix those transactions in. Clean cash + dirty cash = plausibly clean money. Did your laser tag place really take in 50k in cash a week? That is a harder question to prove than you don't work, where are you getting 25k a week from? You'll need good book keeping. However crypto investments don't have any cash transactions. You need to make and recieve wire transactions. These transitions are likely legal but still questionable, and most banks will terminate you if you have questionable transactions. Owning the bank means you don't need to answer a lot of these questions like "where did this money come from?"