Magazine article American Banker

Two Paragraphs of Banking Law Separate Sides in the Magna Case

Magazine article American Banker

Two Paragraphs of Banking Law Separate Sides in the Magna Case

Article excerpt

Who's right: Comptroller of the Currency Eugene A. Ludwig or House Banking Chairman Jim Leach?

The two men squared off last week over the OCC's decision to let Magna Bank of Missouri, a state bank, convert to a federal charter without divesting insurance and real estate activities generally off limits to national banks.

Rep. Leach was outraged last week, lambasting the comptroller for what he viewed as attempts to skirt federal law to grant national banks new powers.

The Iowa Republican called the comptroller a "maverick banking regulator.

"What is so galling to Congress about the comptroller's advocacy is the presumptive hubris of his efforts," Rep. Leach said. "Having lost legislatively, the comptroller is in effect thumbing his nose at Congress and proceeding administratively."

For his part, Mr. Ludwig kept a relatively low profile, saying simply that he's trying to let national banks offer what the market demands.

"When you scratch beneath the veneer of politics and get to the essence of this debate, it's really about the free market and its ability to provide goods and services in the most efficient way possible," Mr. Ludwig said last week.

So what's Magna all about? In January, the Comptroller's Office quietly released a November decision that allowed Magna to keep its insurance and real estate brokerage subsidiaries after converting to a federal charter.

Rep. Leach has already sponsored legislation barring the OCC from expanding national bank insurance powers for five years. The Magna decision so perturbed Rep. Leach that he is considering amending that measure to specifically overturn it. In addition, the House Banking Committee's financial institutions subcommittee is expected to hold hearings on Magna in late April.

The Conference of State Bank Supervisors weighed in on Rep. Leach's side March 6, writing an 11-page legal analysis of the Magna decision.

The Comptroller's Office has said that in deciding the Magna case it relied on the second paragraph of Section 35 of the National Bank Act, which gives the agency authority to let a bank converting to a national charter keep "nonconforming assets. …

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