Viewpoint: Preemption Authorized for State Banks, Too

By Eager, Robert C. | American Banker, May 4, 2007 | Go to article overview

Viewpoint: Preemption Authorized for State Banks, Too


Eager, Robert C., American Banker


The Supreme Court's April 17 decision in Watters v. Wachovia holds that states have no regulatory authority over national-bank operating subsidiaries, because of preemption by the OCC's visitorial powers, the same as for the national bank. This major preemption question is now settled.

A corollary issue for state banks: Watters squarely supports a parallel result under a federal statute enacted last fall that clothes the home-state supervisors of state-chartered banks with visitorial powers parallel to the OCC's.

Congress gave the home-state supervisors general federal visitorial powers over state banks (and their operating subsidiaries) in Section 711 of the Financial Services Regulatory Relief Act of 2006. Section 711 and the 1997 "applicable law" amendments to the Riegle-Neal Act establish a federal regime providing that state banks are governed by their home state's law wherever they operate - a structure parallel to the national bank regime.

Watters also means that the FDIC should complete, and expand, its 2005 rulemaking concerning preemption for state banks under the Riegle-Neal Act of 1994 ("Riegle-Neal I"), as amended in 1997 ("Riegle-Neal II"), to give effect to Section 711, as well. That rulemaking should construe these federal statutes to provide competitive parity for state banks, creating a strong dual banking system and a highly competitive interstate business environment.

Section 711 strengthens the interstate banking regime enacted under the Commerce Clause. It establishes the supremacy of the home state with respect to examination, supervision, enforcement, and collection of all fees or other charges in connection with the business of a state "bank" wherever it is conducted.

Section 711 is materially parallel to the national-bank visitorial powers provision, 12 U.S.C. Section 484. It expressly limits the host-state agency's power to examine for or enforce law only to the laws "applicable" under the Riegle-Neal regime. No role is given any agency in any state where a state bank, or an operating subsidiary, may have only a nonbranch office or customers. Any state's law that conflicts with Section 711 is preempted, parallel to the preemption of state law under Section 484 for national banks.

Section 711 is the fifth federal statute providing competitive parity in a multistate marketplace. In addition to Riegle-Neal I and II, Section 27 of the Federal Deposit Insurance Act provides for the "export" of home-state interest rates for state banks, and Section 104(d) of the Gramm-Leach-Bliley Act preempts burdensome or discriminatory state laws affecting any financial activity of any insured depository institution, affiliate, or associated person.

Section 711 amends Section 10(h) of the FDI Act, 12 U.S.C. Section 1820(h), and specifically provides for the following:

Supervision. …

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Viewpoint: Preemption Authorized for State Banks, Too
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