ICBA - Publications - Comptroller Responds to Critics of Preemption

Comptroller Responds to Critics of Preemption

SEPTEMBER 12, 2003


Comptroller Responds to Critics of Preemption

This week, Comptroller of the Currency Jerry Hawke criticized the state attorneys general and the state legislatures for persistently ignoring the mandates of federalism and undermining the distinctions between state and national banks that "go to the heart of the dual banking system."

Hawke said that the recent clamor from the state attorneys general over OCC preemption actions was surprising because of "its utter disregard of history and precedent" and because of its "intemperate tone." Referring to the OCC's recent order preempting the Georgia anti-predatory lending law, Hawke said that it was the states that are ignoring the mandates of federalism and not the OCC. "We see state after state passing laws intended to limit the powers and regulate the business of national banks," Hawke noted, "including such laws as those that would regulate the fees that national banks may charge, the services they must provide, the kinds of loans they make, their ability to act as fiduciaries, and even their right to do business in the state."

Hawke blamed politics for some of the attacks on the OCC. He said that "crusading enforcers" from the states (referring to state attorneys general like New York's Eliot Spitzer) aspire to the glory of being bank bashers. If states were truly interested in consumer protection they would have responded to OCC's overture to enter cooperative agreements to set a framework to address consumer protection issues relating to national banks, Hawke said.

Hawke feels that the rising chorus of complaints from the states masked "serious underlying problems in the dual banking system" due to the fact that there are no longer meaningful differences between the national and state charters. He said that the states are no longer laboratories of innovation as they were with NOW accounts and adjustable rate mortgages.

As Hawke see it, the "most significant of the recent innovations coming out of state banking departments has been the continuing effort to afford state banks the same opportunities as national banks," noting that 47 of the 50 states have passed some form of "wild card" law automatically authorizing state banks many of the powers and activities permitted for national banks. "The overwhelming value for state banks and their supervisors is competitive parity, not competitive distinction, and they want to blunt any competitive advantage that national banks may have."

Hawke reiterated his complaint that "state supervision is cheaper because the Federal Reserve and the FDIC subsidize the cost of state bank supervision to the tune of about $1 billion a year, while national banks pay the full cost of their supervision." He chided state bank regulators for encouraging national banks to convert to state charters on the basis of price and accessibility rather than on the basis of innovation and quality of supervision. But Hawke thinks that the dual banking system can survive if the states restore the innovation that was once characteristic of state banking.