MCorp Financial, Inc. v. Board of Governors of the Federal Reserve System

Under the Bank Holding Company Act of 1956, the Board of Governors of the Federal Reserve System (the board) (defendant) had supervisory control over the formation and operation of bank holding companies and their subsidiaries. Acquisition of control of a bank required prior approval by the board. The board was to consider the financial and managerial resources and prospects of the entities involved. In 1984, the board revised Regulation Y, which pertained to bank holding companies. The revised Regulation Y provided that a bank holding company must serve as a source of financial and managerial strength to its subsidiary banks. In 1987, the board published a policy statement related to Regulation Y. The policy statement provided that a bank holding company ought to remain ready to use financial resources to provide adequate funds to its subsidiary banks during times of financial stress. Further, the policy statement provided that the failure of a bank holding company to serve as a source of strength for its subsidiary bank could be considered an unsound banking practice or a violation of Regulation Y. MCorp Financial, Incorporated (MCorp) (plaintiff) was a bank holding company. The board brought an administrative proceeding against MCorp, alleging, among other claims, that MCorp failed to act as a source of strength to its subsidiary banks. The board sought to cause MCorp to transfer funds from itself to its troubled subsidiary banks. MCorp sued the board in the district court, moving to enjoin the board’s administrative proceeding against it. The district court granted the motion. The board appealed.