Warren questions Bowman over oversights in Evolve's supervision
In a series of questions, four Democratic senators have asked Federal Reserve Governor Michelle Bowman to account for her role in overseeing Evolve Bank & Trust, a partner bank of the now-bankrupt fintech company Synapse. The senators have requested reports of all exams conducted on Evolve and written communication between Fed staff related to Evolve since 2019.
The senators' inquiry comes as consumers continue to grapple with the fallout from Synapse's bankruptcy, with many still waiting to be made whole due to inaccurate ledgers tracking who the money belonged to and where it was held. Synapse's bankruptcy resulted in more than 100,000 consumers' funds being frozen, and consumers lost access to around $265 million in deposits.
Despite the ongoing investigation, there is no publicly available information or official statement concerning a Federal Reserve investigation into Michelle Bowman’s role in overseeing Evolve Bank & Trust or the Federal Reserve Board’s alleged failure to prevent financial harm caused by the bankruptcy of Synapse.
Evolve Bank & Trust, a West Memphis, Arkansas-based institution, underwent a significant transformation following its 2005 acquisition. The bank shifted from primarily serving local small businesses and consumers to a banking-as-a-service model supporting fintech companies. Evolve Bank & Trust was a partner of Synapse, but terminated its partnership with Synapse after discovering it could not rely on Synapse's information.
The relationship between Evolve Bank & Trust and Synapse showed clear warning signs well before Synapse's failure, including balance discrepancies, missing funds, and the collection of approximately $26 million in fees directly from Synapse customer accounts between 2019 and 2023.
In addition to the investigation into Evolve Bank & Trust's dealings with Synapse, a federal grand jury investigation is reportedly underway. Another fintech that worked with Synapse, Fund That Flip, has filed a motion for an examination of Evolve Bank & Trust, arguing that an oral examination and presentation of documents were necessary since Evolve refused to provide the fintech with information and documents related to the funds belonging to FTF's customers in accounts managed through Evolve.
The senators have also criticised Bowman for missing red flags and opposing stronger regulations since joining the board in 2018. They have pressed Bowman on whether she would commission a third-party review similar to the one she called for following the Silicon Valley Bank failure, to better understand the Fed's supervisory lapses related to Evolve.
The senators have demanded to know how often Bowman met with Fed staff to receive information on consumer compliance issues at individual banks and when she was alerted about third-party risk at Evolve or that the lender had "severe recordkeeping issues."
In addition to the investigation into Evolve Bank & Trust, the Federal Reserve has issued an enforcement action against the bank last June over shortcomings in the bank's anti-money laundering, risk management, and consumer compliance programs. Two other fintech partners of Evolve Bank & Trust, SoLo Funds and Branch, were sued by the Consumer Financial Protection Bureau for "predatory lending and unlawful deposit account practices," respectively.
The senators have also asked for Bowman's views on bank-fintech partnerships, including the importance of strong regulatory safeguards and concerns about 'burden', following the Evolve-Synapse catastrophe.
- The senators' inquiry into Michelle Bowman's role in overseeing Evolve Bank & Trust extends beyond the bankruptcy of Synapse, as they question her handling of bank-fintech partnerships, particularly in light of the Evolve-Synapse catastrophe.
- Given the failures of fintech companies like Synapse, the senators have emphasized the importance of implementing strong financial regulations and safeguards in the industry, with specific attention to the Federal Reserve's role in overseeing partner banks like Evolve.
