Academic journal article Texas Review of Law & Politics

Supremacy Clause Limitations on Federal Regulatory Preemption

Academic journal article Texas Review of Law & Politics

Supremacy Clause Limitations on Federal Regulatory Preemption

Article excerpt


This coming Term, the Supreme Court of the United States will hear arguments in and resolve a case that raises one of the more troubling questions of administrative law, if not of federalism as a whole: Whether and when a federal administrative agency can preempt state law by regulation without any evidence that Congress contemplated and authorized the preemption. The answer may have sweeping national implications, especially in light of recent efforts by federal administrative agencies to pursue "preemption by regulation" in the areas of product liability for FDA-approved drugs,1 banking,2 and automobile safety standards.'

The case at issue is Waiters v. Wachovia Bank, N.A., on review from the United States Court of Appeals for the Sixth Circuit.4 That the Supreme Court decided to grant a petition for certiorari in the case at all is telling: The Sixth Circuit's decision does not conflict with the decision of any other court; it follows the decisions of two other United States Courts of Appeals (the Second and Ninth);8 and the Solicitor General of the United States asked the Court not to review these cases because they were-in the Solicitor General's view-correctly decided and perfectly consistent with each other.6 None of these factors, however, could mask the fact that Walters merits the Supreme Court's examination because of its fundamental significance to the balance of power between states and federal administrative agencies.


The National Bank Act was enacted in 1864 to further the development of a national banking system.7 Among its original provisions were a grant of various powers to national banks, including "all such incidental powers as shall be necessary to carry on the business of banking,"8 and a prohibition against national banks being "subject to any visitorial powers" except as permitted by federal law.9 Whatever Congress thought the powers of national banks should be in 1864, there is no indication that Congress envisioned or intended that those powers could be exercised by an entity other than a national bank, even if that entity was controlled by a national bank. In fact, this was the state of federal banking regulation for roughly 100 years after the National Bank Act came into effect: only national banks exercised the powers-including the "incidental powers"-of national banks.

All of this changed in the mid-1960s, when the Office of the Comptroller of the Currency (OCC)-the federal regulatory agency charged with enforcing the National Bank Act10determined that the "incidental powers" of a national bank should include the power to conduct "the business of banking" through an operating subsidiary incorporated under state law.11 Over time, this new power and the OCC's role in overseeing operating subsidiaries evolved substantially. First, numerous national banks began conducting banking activities through state-law-created operating subsidiaries, which OCC regulations did not require be wholly owned-or even 50% owned-by the national banks.12 Second, the OCC eventually decided that state regulation of these state-law-created subsidiaries should be severely limited, so it promulgated a regulation in 2001 freeing the subsidiaries from state law except "to the same extent that those laws apply to the parent national bankfs]" of the subsidiaries.13 Among other things, this meant that national banks' operating subsidiaries-even though incorporated under state law-were, like national banks chartered under federal law, no longer subject to any "visitorial powers" of a state.14 Not surprisingly, this last step by the OCC was poorly received by a substantial number of states, which believed that Congress only authorized "national banks," as creatures of federal law, to be exempted from state "visitorial powers." In the view of these states, the National Bank Act still left national banks' affiliates, which are created under and exist by operation of state law, open to state examination and regulation. …

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