## Facts

- MCorp Financial, Inc. was a multibank holding company regulated by the Board of Governors of the Federal Reserve System under federal banking statutes and Regulation Y.
- In 1984, Regulation Y was amended to state that a bank holding company must serve as a “source of financial and managerial strength” to subsidiary banks; a 1987 policy statement described expected capital support during financial stress.
- In October 1988, the Board began an administrative enforcement proceeding alleging MCorp violated the “source of strength” requirement and engaged in unsafe and unsound practices affecting subsidiary banks.
- The Board issued temporary cease-and-desist orders, including an order directing MCorp to use all assets to provide capital support to subsidiary banks needing capital.
- MCorp asserted that compliance would force transfers of substantial nonbank assets and effectively exhaust the holding company for failing subsidiaries.
- After filing for Chapter 11 bankruptcy in March 1989, MCorp sued in federal district court seeking to enjoin the Board’s ongoing administrative proceedings.
- The district court enjoined the Board from prosecuting both the “source of strength” and a separate enforcement matter involving § 23A of the Federal Reserve Act.

## Issues

1. Whether 12 U.S.C. § 1818(i)(1) barred federal court jurisdiction to enjoin the Board’s ongoing enforcement proceedings.
2. Whether a narrow ultra vires exception permitted pre-enforcement judicial review of the validity of the Board’s “source of strength” regulation.
3. Whether the Board had statutory authority to impose and enforce a “source of strength” duty requiring a holding company to provide capital support to subsidiary banks.

## Decision

- The Fifth Circuit held § 1818(i)(1) barred the district court from enjoining the Board’s § 23A enforcement proceeding and vacated the injunction as to that matter.
- The court held the district court could exercise narrow ultra vires jurisdiction to review the validity of the “source of strength” regulation notwithstanding § 1818(i)(1).
- On the merits, the court held the Board exceeded its statutory authority in promulgating and enforcing the “source of strength” rule as an enforceable duty.
- The case was remanded with instructions to enjoin enforcement of the “source of strength” regulation against MCorp.

## Legal Principles

- 12 U.S.C. § 1818(i)(1) broadly precludes courts from issuing injunctions that would affect the issuance or enforcement of administrative notices or orders under the federal banking enforcement scheme, except through the statute’s specified review routes.
- A narrow ultra vires doctrine may permit pre-enforcement judicial review where an agency is alleged to have acted beyond delegated authority in a way that would otherwise prevent meaningful review.
- General supervisory authority over bank holding companies and acquisition review factors do not, without clear statutory authorization, support an enforceable regulation compelling a holding company to commit corporate assets to recapitalize subsidiary banks.

## Conclusion

The Fifth Circuit treated § 1818(i)(1) as foreclosing injunctive relief against one enforcement track, but permitted limited pre-enforcement review of the “source of strength” rule and held the Board lacked statutory authority to enforce it as a mandatory capital-support obligation against MCorp.


MCorp Fin., Inc. v. Bd. of Governors of the Fed. Rsrv. Sys., 900 F.2d 852 (5th Cir. 1990)