4(M) Agreement

Despite many opportunities, the Federal Reserve has never exercised its transfer power under Section 4 (m). In fact, almost 40% of large COMMISSIONs do not currently meet the well-managed requirement to continue to operate non-bank activities. The Federal Reserve has not publicly explained why it opposes the application of Section 4, point m). I argue that the Agency`s long-standing neglect of Section 4 (m) has become a self-fulfilling prophecy. Given that the Federal Reserve has not invoked Section 4 (m) for more than 20 years, the Authority is now at risk of considering its first use of Section 4 (m) as arbitrary. Indeed, the financial supervisory authorities have several underutilized authorities that allow them to order transfers. The most promising of these authorities allows the Federal Reserve to force a poorly managed financial conglomerate to terminate its non-bank subsidiaries. Historically, bank holding companies (BHCs) have been limited to traditional banks and closely related activities, such as deposits and loans. In 1999, however, Congress approved a new type of BHC – a financial holding company (HCF) – to conduct a wider range of financial activities, including investment banking and insurance.

To become HCF and participate in these activities, a BHC and its subsidiaries must be well capitalized and well managed, compared to an annual monitoring audit. Under Section 4 (m) of the Bank Holding Company Act (BHC Act), where an HCF is no longer well capitalized and managed, the Federal Reserve may order the transfer of its subsidiaries without banking. Since August 1989, the Federal Reserve has issued public all final enforcement orders under the Financial Institution Reform, Redress and Enforcement Act 1989; Since November 1990, it has made public the written agreements under the Crime Act 1990. Since July 21, 2011, the Federal Reserve has released all of the Federal Reserve`s latest enforcement measures for savings and credit holding companies. Formal enforcement measures by the Federal Reserve prior to August 1989 are not public. In general, the Federal Reserve takes formal enforcement action against the aforementioned entities and individuals for violations of the law, rules or regulations, uncertain or unprecedented practices, breaches of trust obligations and rights violations. Formal enforcement measures include enforcement orders, written agreements, immediate correction directives, distance and prohibition injunctions, and civil fin assessment orders. Formal and informal sanctions against banking organisations by bank supervisors are increasingly public.