by Pam Martens and Russ Martens at Wall Street on Parade
If there is one person in America who comprehensively understands the threats to the U.S. banking system, it is Arthur E. Wilmarth, Jr., author of the 2020 seminal book, Taming the Megabanks: Why We Need a New Glass-Steagall Act. Wilmarth is Professor Emeritus of Law at George Washington University Law School and has published more than 40 law review articles and book chapters in the fields of financial regulation and American constitutional history.
Wilmarth had this to say about the way the Fed allowed a crypto outfit, SoFi, to scoop up a federally-insured bank in February of this year:
“The San Francisco Fed relied on the same five-year transitional exemption in the BHC Act [Bank Holding Company Act] to allow SoFi to acquire Golden Pacific Bancorp and its national bank subsidiary despite SoFi’s nonconforming crypto trading activities. I find it astonishing and disturbing that the Federal Reserve Board would allow the San Francisco Fed to issue such a path-breaking approval — which permits a bank holding company to offer crypto trading services to depositors of its subsidiary bank — under delegated authority and without a published opinion.”
Wilmarth was referring to a letter sent on November 21 by Senator Sherrod Brown, Chair of the Senate Banking Committee, and some of his colleagues on that Committee, to federal bank regulators about SoFi. The letter read in part:
“In January 2022, SoFi received approval from the Federal Reserve for the acquisition of Golden Pacific Bancorp, Inc. and a conditional approval from the Office of the Comptroller of the Currency for the creation of SoFi Bank, N.A. SoFi completed the acquisition in February 2022. As part of the approval, the Federal Reserve provided SoFi with two years to divest from SoFi Digital Assets — a nonbank subsidiary that allows retail investors to buy and sell digital assets — or conform the subsidiary’s impermissible digital asset activities to the law. During this conformance period, SoFi has committed not to ‘expand [its] impermissible activities,’ except as specifically authorized by law. SoFi initially agreed to these terms, but since the acquisition, SoFi Digital Assets has apparently expanded its retail digital assets operations.
“Two months after receiving regulatory approval, SoFi announced a new service allowing customers of its national bank to invest part of every direct deposit into digital assets with no fees. The company publicly billed this service as ‘the latest expansion of SoFi’s offerings to make it simpler to get started with cryptocurrency investing.’ SoFi’s own investor protection materials, however, warn customers that at least one token listed on SoFi Digital Assets is ‘a crypto pump-and-dump’ hazard with ‘no special use case or features’ and that ‘[it] might be among the most high-risk endeavors an investor can take.’ Troublingly, this conduct raises questions about SoFi’s compliance with commitments made in the January 2022 approvals and to meeting its ongoing obligations as a banking organization.”
It doesn’t get any crazier than this. A federally-insured bank knowingly peddling a crypto pump and dump scheme through a subsidiary operation.
Wilmarth sees striking parallels between the Fed’s actions with SoFi and how the Fed approved the first merger of a Wall Street trading house, Salomon Brothers, with a federally-insured bank, Citicorp’s Citibank. Wilmarth gave us permission to quote the following from his book on that merger:…
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