Federal Deposit
Insurance Corporation

May 13, 2005

Executive Secretary Robert E. Feldman
Attn: Comments/Legal ESS
Room 3060
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429

Re: PR-25-2005
       Public Hearing on Preemption Petition

Executive Secretary Feldman:

On behalf of the 155,000 members of the California Association of REALTORS®, I submit the following written statement for the Federal Deposit Insurance Corporation’s (FDIC) Public Hearing on the Financial Services Roundtable (FSR) Preemption Petition. C.A.R.’s members are engaged in the business of real estate brokerage, sales, management and financing. REALTORS® are active in their communities as small businesses, homeowners, and concerned citizens. REALTORS® believe that homeownership is the best way to build community participation and a better quality of life for all Americans. Because of the vital role banks play in the real estate industry, as well as in community development and consumer protection, C.A.R. is asking the FDIC to reject the Petition for Preemption. The FDIC should take this opportunity to protect the dual banking system in the U.S. and acknowledge the right of states to regulate banking within their borders.

The FSR petition directly threatens the sovereignty of every state, as well as each state’s authority to govern and regulate banking within its own borders. C.A.R. believes every citizen of a state should have a say in how a bank conducts business and is regulated within their states. Through active state legislatures that can respond to the needs of the consumer and business environment within their borders, laws and regulations that best suit the need of the citizens of the state can be achieved quickly and effectively. States such as California, where the consumers have asked for strong consumer protection laws on issues such as predatory lending, disclosures, environmental, and others, should be allowed to regulate state-chartered businesses within its borders. This allows California’s consumers the choice of banking at a federally chartered bank, or a state-chartered bank regulated by California’s own laws. Preemption of state laws and regulations for state-chartered banks would strip the consumer of this choice, the state’s protection, and access to a dual banking system.

The dual banking system that the U.S. currently has is unique throughout the world and has provided unmatched benefits to its citizens. The products, services, security, convenience, and choice offered by the dual banking system are the bedrock which the U.S. financial system is built upon. When the National Bank Act of 1863 was enacted, many thought it was only a matter of time until all state-chartered banks switched, thus eliminating state-chartered banks for good. In fact, in the long term, quite the opposite has happened. While the FSR would have you believe that state-chartered banks are unable to compete with federally chartered banks, the higher number of new state-chartered banks throughout the U.S. would prove quite the opposite. According to the conference of State Bank Supervisors, “78% of all de novo banks chartered since January 1st 2000 chose the state charter.” C.A.R. also agrees with, and asks the FDIC to consider the Office of the Comptroller of the Currency’s statement that, “Indeed, differences that may be controversial today are at the very heart of the ‘dual’ banking system and are inextricably linked to the benefits and success we associate with the dual system.” New banks recognize these differences and, as the numbers have proven, over three quarters of them choose to charter at the state level.

Today’s dual banking system naturally evolved and has been so successful because of the different roles that state chartered and federally chartered banks play. State banks are there to service the needs of the communities, and to shape and create products and services specialized for those communities. In contrast, the role of federally chartered banks is to support a stable national currency, finance commerce, and support the nation’s economic growth and development. While the FSR would like parity between state and federal banks, the truth is there never was meant to be parity because their roles are not the same. As the Office of the Comptroller of the Currency stated in a September 2003 report, “State banking does not deliver the benefits of having separate state systems serve as ‘laboratories’ if state bank powers simply copycat national bank powers, or if state consumer protection standards that would otherwise be applicable to state banks are waived whenever such a law is preempted as applied to a national bank.”

The end result of preempting state laws for state-chartered banks would not “ensure the continued vitality of the dual banking system,” as the FSR would like you to believe. Instead, the end result would be an entirely different dual banking system. One where nationally chartered banks are regulated and governed by federal regulation, and state chartered banks are regulated and governed by one single state. A state that is willing to impose little-to-no regulatory restrictions on banks, and that is willing to forgo consumer protection in lieu of lax banking regulations. This would result in the worst scenario imaginable: banks shopping for the state with the most lenient regulation.

Federal Reserve Board Chairman Alan Greenspan stated to an annual meeting of the Conference of State Bank Supervisors that, “The ability of the state to produce an innovative and vibrant alternative to the federal structure has continued for over 130 years and can only be applauded.” C.A.R. agrees with this assessment and, in conclusion, asks the FDIC to maintain and protect the dual banking system that has fostered the U.S. economy, and to respect the sovereignty of the states and their rights to regulate banking within their borders. In addition, to recognize the success of the free market at work, that banks can choose whichever charter they prefer, and that over three quarters of newly chartered banks prefer a state charter.

Thank you for your consideration of our views. If we may provide you with any additional information, please do not hesitate to contact Matthew Roberts, Public Policy Analyst, by phone 213-739-8284, fax 213-739-7255 or e-mail matthewr@car.org.

Sincerely,

Jim Hamilton
President
California Association of REALTORS®