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4M Agreement Federal Reserve

Milbank Financial Institutions Partners Douglas Landy and Partner James Kong wrote an article in The Review of Banking – Financial Services entitled „Behind Closed Doors: The Use of 4 (M) Agreements to Effect Federal Reserve Policy.” The article discusses the federal reserve`s role in oversight and implementation, a brief history of the activities of holding financial companies, and the regulatory response to the financial crisis after 2008. He also points out that the Federal Reserve uses the confidential agreements covered in Section 4, point m) as a „shadow” political instrument to carry out activities that it considers risky. This article concludes with the presentation of a recent speech by Vice-President Quarles, in which he proposes concrete reforms to increase the transparency of the banking supervision process. Expansion of the Secret Empire At the same time, the field of information considered confidential has expanded far beyond traditional banking supervision. All Bundesbank regulators have used the passage of FOIA, a law aimed at expanding the public information field to extend their area of confidentiality beyond the traditional banking audit framework. The exact terms of the FOIA exemption, written by bank supervisors, include an area that goes beyond an audit report and include „issues contained in audit, operating or labour status reports or related to the disclosure or use of a regulatory or supervisory agency of financial institutions (5.C. The result has been the creation of a non-public parallel regulatory system, which is neither transparent nor accountable. It is only possible to talk about examples that have become public by chance due to the constraints of confidential surveillance information, but there is much more. Those who are in banks or supervisory authorities can fill out their own examples. 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. It was not until 1966 that the supervisory authorities of the banks obtained formal enforcement powers.

Before that, the main powers of behind-the-scenes banking supervision were moral morals and jawboning, aided by the nuclear threat – not used – to revoke a charter or end deposit insurance. Even after obtaining the power to remove directors and officers, impose civil law fines, enter into informal written intentions, formal approval decisions or written agreements, they preferred informal decisions – i.e. not public – board decisions and declarations of intent. The long litany of very public approval orders and written agreements after the financial crisis changed this custom.

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