Preemption Challenge Is a Futile Exercise
The comptroller of the currency has issued final regulations clarifying when the operations of national banks are subject - and not subject - to the jurisdiction of the states. The comptroller notes that he is attempting to codify, not alter, existing law.
He says, in a nutshell, that contract law, property law, environmental law, and other state laws of general application to all companies also apply to national banks. But states may not attempt to regulate the powers and activities of national banks or create impediments to a national bank's exercise of its powers.
The comptroller's action is being challenged by most of the state attorneys general and the Conference of State Bank Supervisors. They contend that the comptroller is breaking new ground and if his actions are upheld, it will undermine the dual or state/federal banking system and will injure consumers.
Nothing could be further from the truth, in my judgment. I believe the comptroller's` preemption regulations are: a) pro-consumer; b) very much in the best interests of all banks, both state and nationally chartered; c) essential to the preservation of our dual or state/federal banking system; d) fully in accord with 140 years of statutory and case law, including decisions by the Supreme Court; and e) quite similar to the federal preemption rules applicable to federally chartered thrifts and credit unions, about which there appears to be no controversy.
The CSBS, together with 35 state attorneys general, has filed an amicus brief against the comptroller's preemption rules in Wachovia v. Burke. Any time an organization purporting to represent the best interests of the banking industry finds itself in bed with 35 state attorneys general - most of whom spend much of their time coveting higher political office - it is time for that organization to pause and reflect on its actions.
Wachovia, a national bank, created an operating subsidiary to carry out mortgage banking operations. The Connecticut banking commissioner and the CSBS contend that the states are entitled to regulate operating subsidiaries. The comptroller believes these subsidiaries are entitled to the same protections from state interference as national banks so long as they are engaged only in activities permissible to national banks.
The CSBS intervention in the case strikes me as futile - even if the CSBS prevails, Wachovia appears to have readily available alternatives. It can shift the mortgage banking activities into a national bank or federal savings bank charter. In either case, the entity will be shielded from inappropriate state regulation.
Besides being futile, the CSBS position is contrary to the best interests of the banking industry and its customers. I am a strong proponent of our dual or state/federal banking system. It has led to much innovation at both the state and federal levels, as the states and the comptroller have attempted at various times to improve the competitive position of their banks.
The larger national banks do business throughout the nation. …