By MacDonald, Duncan
American Banker , Vol. 169, No. 59
Julie Williams, the second in command and chief counsel of the Office of the Comptroller of the Currency, is perhaps the bank regulatory agencies' leading defender of preemption. Bankers should read the speech she delivered March 9 at an America's Community Bankers conference -- a helpful response to the most dangerous threat to free-market banking in more than a century.
After eight decades of regulation solely by the states, the insurance industry recently asked Congress to treat them like banks with protectors like Williams. The reason for their plea is evident to everyone: state regulation has all but turned insurance into a national nightmare.
If Ms. Williams loses the preemption war, consumers, the insurance industry, and others that rely on and benefit from our nation's commitment to free markets will lose too.
Preemption protects not just banks and other corporate creatures of the federal government but also the First Amendment and the rest of the Bill of Rights, the democratic rights of citizens, and the central authority of Congress to regulate our economy and promote foreign trade.
In adopting the "supremacy clause," which holds that the Constitution and acts of Congress are "the supreme law of the land," the drafters of the Constitution wanted to undo the primary failure of the Articles of Confederation, whose legacy was balkanization long before that terrible word existed.
The banking world I entered in the early 1970s was so absurdly balkanized by state law that you might have though banking was a criminal enterprise. Branching across state lines was impossible, and virtually all retail credit products were subject to strict price controls. When I see state attorneys general pushing a modern-day version of John C. Calhoun's nullification doctrine, I think of those days, when preemption essentially didn't exist.
Price controls were perhaps the most insidious restriction that the states imposed; in effect they segregated the lending system.
Politicians thought they saved money for consumers, but safety-and-soundness standards led banks to lend only to the best credit risks. Not surprisingly, middle- and upper-class white men fared best. Price controls guaranteed that minorities and single women would be captives of the exorbitant prices and oppressive terms of small loan companies, shoddy merchants, and loan sharks.
Today we'd call the regime the states had erected racist, sexist, and predatory; back then it was considered consumer protection.
Fortunately in 1978 the Supreme Court put an end to this nonsense when it held, in its Marquette decision, that the National Bank Act preempts state law.
The real importance of the decision was to allow free-market pricing for bank loan products. By doing so the court gave millions of forgotten consumers access to bank cards. …