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FDIC Federal Register Citations

[Federal Register: March 21, 2005 (Volume 70, Number 53)]
[Proposed Rules]
[Page 13413-13425]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr05-22]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Petition for Rulemaking to Preempt Certain State Laws

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of public hearing.

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SUMMARY: This document announces a public hearing on a petition for
rulemaking (``Petition'') that would preempt certain state laws.
Generally, the Petition asks the FDIC to issue a rule that preempts the
application of certain state laws to the interstate operations and
activities of state banks. The stated purpose of the requested
rulemaking is to establish parity between state-chartered banks and
national banks in interstate activities and operations. A copy of the
Petition is attached to this document. The FDIC has scheduled a hearing
to obtain the public's views on the issues presented by the Petition.
This document sets forth the date, time, location, and other details of
the hearing; it also summarizes the Petition and highlights several
issues that participants in the hearing may wish to address.
Opportunities to make an oral presentation at the hearing are limited,
and not all requests may be granted. Attendance at the hearing is not
required in order to submit a written statement.

DATES: The hearing will be held on Tuesday, May 24, 2005, from 8:30
a.m. to 5 p.m. Anyone wishing to make an oral presentation at the
hearing must (i) deliver a written request to the Executive Secretary
of the FDIC, no later than 5 p.m. on Monday, May 9, 2005; and (ii)
deliver a copy of his or her written statement plus a two-page (or
less) summary of the statement to the Executive Secretary no later than
5 p.m. on Monday, May 16, 2005. All limited-appearance statements
submitted in lieu of an oral presentation must be received by the
Executive Secretary no later than 5 p.m. on Monday, May 16, 2005.

ADDRESSES: The hearing will be held in the Board room at the FDIC's
headquarters, 550 17th Street, NW., Washington, DC.
    You may submit a written request to make an oral presentation at
the hearing, a copy of the written statement you will present, and the
two-page (or less) summary, or a limited-appearance statement by any of
the following methods:
     Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
Click on Submit Comment.
     E-mail: comments@fdic.gov.
     Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Room 3060, Federal Deposit Insurance Corporation,
550 17th Street, NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
     Public Inspection: All statements and summaries may be
inspected and photocopied in the FDIC Public Information Center, Room
100, 801 17th Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m.
on business days.
     Internet Posting: Statements and summaries received will
be posted without change to http://www.FDIC.gov/regulations/laws/
federal/propose.html, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: For questions regarding the conduct of
the hearing: contact Valerie Best, Assistant Executive Secretary, (202)
898-3812; for questions regarding substantive issues: contact Robert C.
Fick, Counsel, (202) 898-8962; or Joseph A. DiNuzzo, Counsel, (202)
898-7349, Legal Division, Federal Deposit Insurance Corporation,
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

[[Page 13414]]

I. Overview of the Rulemaking Petition

    The Financial Services Roundtable, a trade association for
integrated financial services companies (``Petitioner''), submitted the
Petition to the FDIC. The Petition asks that the FDIC adopt rules
concerning the interstate activities of insured state banks and their
subsidiaries that are intended to provide parity between state banks
and national banks. Generally, the requested rules would provide that a
state bank's home state law governs the interstate activities of state
banks and their subsidiaries to the same extent that the National Bank
Act (``NBA'') governs a national bank's interstate activities. A copy
of the entire Petition is appended to this notice. The Petitioner
requests that the FDIC adopt rules with respect to the following areas:
     The law applicable to activities conducted in a host state
by a state bank that has an interstate branch in that state,
     The law applicable to activities conducted by a state bank
in a state in which the state bank does not have a branch,
     The law applicable to activities conducted by an operating
subsidiary (``OpSub'')\1\ of a state bank,
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    \1\ Generally, an operating subsidiary is subsidiary of a bank
or savings association that only engages in activities that its
parent bank or savings association may engage in.
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     The scope and application of section 104(d) of the Gramm-
Leach-Bliley Act (``GLBA'') regarding preemption of certain state laws
or actions that impose a requirement, limitation, or burden on a
depository institution, or its affiliate, and
     Implementation of section 27 of the Federal Deposit
Insurance Act (``FDI Act'') (which permits state depository
institutions to export interest rates).
    The Petitioner argues that it is both necessary and timely for the
FDIC to adopt rules that clarify the ability of state banks operating
interstate to be governed by a single framework of law and regulation
to the same extent as national banks. According to the Petitioner, over
the last decade the federal charters for national banks and federal
thrifts have been correctly interpreted by the Office of the
Comptroller of the Currency (``OCC'') and the Office of Thrift
Supervision (``OTS''), with the repeated support of the federal courts,
to provide broad federal preemption of state laws that might otherwise
apply to the activities or operations of federally-chartered banking
institutions within a state. The result, it asserts, is that national
banks and federal savings associations now can do business across the
country under a single set of federal rules. In contrast, the
Petitioner believes that there is widespread confusion and uncertainty
with respect to the law applicable to state banks engaged in interstate
banking activities. Furthermore, it argues, this uncertainty produces
the potential for litigation and enforcement actions, deters state
banks from pursuing profitable business opportunities, and causes
substantial expense to a state bank that decides to convert to a
national bank in order to gain greater legal certainty. Finally, the
Petitioner asserts that the FDIC has the authority, tools and
responsibility to correct this imbalance.

II. The FDIC's Approach to the Petition

    The FDIC will hold a hearing to obtain the public's views on the
Petition. The FDIC believes that public participation will provide
valuable insight into the issues presented by the Petition and will
assist the FDIC in deciding how to respond to the rulemaking request.
The FDIC's options include: (i) Denying the entire Petition, (ii)
granting the entire Petition, (iii) granting the Petition in part and
denying the Petition in part, and (iv) seeking further clarification of
the Petition from the Petitioner. If the FDIC grants all or part of the
Petition, a notice of proposed rulemaking will be published in the
Federal Register, and an additional opportunity for public comment will
be provided. The FDIC is interested in obtaining the views of the
financial institutions industry, consumer groups, state financial
institution supervisors, other state authorities, industry trade groups
and the general public on the legal, policy, and other issues raised in
the Petition.

III. Issues Presented by the Petition

    Although the FDIC is particularly interested in obtaining the
public's views on the general and specific issues highlighted in this
notice, we also are interested in the public's views on any other legal
or policy issues implicated by the Petition. As a result, the FDIC
encourages interested parties to address not only the highlighted
issues, but also all other issues raised by the Petition.

A. General Issues

    With respect to the general issues raised by the Petition, the FDIC
requests the public's views on the following:
    G-1. Is a preemptive rule in these areas necessary to preserve the
dual banking system?
    G-2. What would be the impact on consumers if a preemptive rule
were issued in these areas?
    G-3. What are the implications of rulemaking in these areas for
state banking regulation?
    G-4. Would the measures urged by Petitioner achieve competitive
balance between federally-chartered and state-chartered financial
institutions as advocated by the Petitioner?
    G-5. Are there alternative mechanisms available that would achieve
the policy goals advocated by the Petitioner?
    G-6. Should the issue of competitive parity in interstate
operations be left to Congress?
    G-7. If the FDIC determines that it has the legal authority to
proceed with a preemptive rule, are there reasons why the FDIC should
decline to do so? If so, what are they?
    G-8. What would be the negative impact, if any, of the FDIC
adopting a preemptive regulation as suggested by the Petitioner?
    G-9. Do the states have a legitimate interest in how banks conduct
business within their borders that would be undermined by the
Petitioner's request?
    G-10. Can state banks be expected to benefit if the FDIC were to
preempt state law in the area of interstate banking operations? If so,
how?
    G-11. What considerations should the FDIC take into account that
either support or challenge the proposition that Congress intended to
provide the comprehensive parity envisioned by the Petition?
    G-12. Is there a need for clarification on what law applies to the
interstate operations of state banks?

B. Specific Issues

    Each of the five subject areas addressed by the Petition is
described in summary fashion below. However, you are encouraged to read
the Petition itself (which is attached) to gain complete details on the
requested action. Each of the five subject areas is followed
immediately by specific issues upon which the FDIC requests public
input.
1. The law Applicable to Activities Conducted in a Host State by a
State Bank That has an Interstate Branch in That State
    The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (Riegle-Neal I'') \2\ generally established a federal framework
for interstate branching for both state banks and national banks. Both
Riegle-Neal I and amendments made to Riegle-Neal I by the Riegle-Neal
Amendments Act of

[[Page 13415]]

1997 (``Riegle-Neal II'') \3\ contain express preemption provisions
regarding which host state laws apply to a branch of an out-of-state
bank.
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    \2\ Public Law 103-328, 108 Stat. 2338 (1994) (codified to
various sections of title 12 of the United States Code).
    \3\ Public Law 105-24 (1997).
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    The Petitioner asserts that Congress enacted Riegle-Neal II to
provide competitive equality between state banks and national banks
with respect to interstate banking. Riegle-Neal II revised the language
of section 24(j)(1) of the FDI Act to read as follows:

    The laws of the host state, including laws regarding community
reinvestment, consumer protection, fair lending, and establishment
of intrastate branches, shall apply to any branch in the host state
of an out-of-state state bank to the same extent as such state laws
apply to a branch in the host state of an out-of-state national
bank. To the extent host state law is inapplicable to a branch of an
out-of-state state bank in such host state pursuant to the preceding
sentence, home state law shall apply to such branch.

    Riegle-Neal II, therefore, provides that host state law does not
apply to a branch in the host state of an out-of-state, state bank to
the same extent that host state law does not apply to a branch in the
host state of an out-of-state national bank. When host state law does
not apply, Riegle-Neal II provides that home state law applies. The
Petition raises the issue of what law applies to activities of an out-
of-state, state bank in a host state in which the bank maintains a
branch, when those activities are conducted by the bank directly, or
through an OpSub, or by some means other than the branch. The
Petitioner argues that the FDIC should issue a rule that provides that
home state law applies uniformly to all business of the bank in that
State, whether by the bank directly, through the host state branch,
through a loan production office (``LPO''), or through some other non-
branch office, or through an OpSub.
    The FDIC requests the public's views on the following specific
issues:
    1-1. What considerations should the FDIC take into account that
either support or challenge the proposition that Congress granted the
FDIC the authority to make home state law apply to all business
conducted by a state bank in a host state in which the bank has a
branch, whether conducted directly, or through a branch, a loan
production office (an LPO), other office, or OpSub?
    1-2. If the FDIC were to adopt a rule as requested, who should
determine for each state whether the NBA and OCC rules would preempt
host state law for national banks?
    1-3. If the FDIC were to adopt a rule as requested, how should the
applicable home state law be determined when the home state statute law
is silent?
2. The law Applicable to Activities conducted by a State Bank in a
State in Which the State Bank Does Not Have a Branch
    The Petitioner requests that the FDIC adopt rules to provide that
the home state law of a state bank will apply to its activities in
other states (i.e., any state other than its home state) to the same
extent as the NBA applies to the activities of national banks. The
Petitioner cites Riegle-Neal II and section 104(d) of GLBA as an
indication of Congressional intent on this issue. In addition,
Petitioner refers to principles of administrative law that permit an
agency to reasonably fill in statutory gaps and address the application
of existing laws to new developments.
    The FDIC requests the public's views on the following specific
issue(s):
    2-1. What considerations should the FDIC take into account that
either support or challenge the proposition that an out-of-state, state
bank should be able to operate in a state where the bank has no
branches under the bank's home state law to the same extent that an
out-of-state national bank can operate under the NBA and OCC rules?
3. The law Applicable to Activities Conducted by an Operating
Subsidiary (``OpSub'') of a State Bank
    The Petitioner requests that FDIC adopt a rule that expressly
provides that an OpSub of a state bank will be governed by the same law
that is applicable to its parent state bank, except when state law
applies to an OpSub of a national bank.
    The FDIC requests the public's views on the following specific
issues:
    3-1. What considerations should the FDIC take into account that
either support or challenge the proposition that an OpSub should be
able to operate under the bank's home state law to the same extent that
an OpSub of a national bank can operate under the NBA and OCC rules?
    3-2. What considerations should the FDIC take into account that
either support or challenge the proposition that an OpSub should be
deemed equivalent to a division of the bank itself?
    3-3. If the FDIC were to adopt the requested rule, what
requirements should the subsidiary meet in order to be considered an
OpSub, e.g., should it be wholly-owned, majority-owned, or just
controlled by the bank?
4. The Scope and Application of Section 104(d) of GLBA Regarding
Preemption of Certain State Laws or Actions That Impose a Requirement,
Limitation, or Burden on a Depository Institution, or Its Affiliate
    Section 104 of the GLBA (``section 104'') \4\ is titled ``Operation
of State Law.'' It expresses the intent of Congress that the McCarran-
Ferguson Act which is entitled ``An Act to express the intent of
Congress with reference to the regulation of the business of
insurance'' \5\ ``remains the law of the United States.'' (Section
104(a)). In addition, it: (a) Addresses insurance licensing
requirements for persons engaged in the business of insurance; (b)
addresses the extent to which a state may regulate affiliations between
depository institutions and insurers; (c) addresses the extent to which
states may impose restrictions on insurance sales by depository
institutions; (d) indicates that states may not prevent or restrict
depository institutions or their affiliates from engaging in activities
authorized or permitted under GLBA; \6\ and (e) limits the ability of
states to discriminate between depository institutions engaged in
insurance activities authorized or permitted by GLBA or other federal
law and others engaged in such activities.
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    \4\ 15 U.S.C. 6701.
    \5\ 15 U.S.C. 1011 et seq. Among other things, the McCarran-
Ferguson Act provides that ``the business of insurance, and every
person engaged therein, should be subject to the laws of the several
states which relate to the regulation or taxation of such
business.'' (15 U.S.C. 1012(a)) and that ``No Act of Congress shall
be construed to invalidate, impair, or supersede any law enacted by
any state for the purpose of regulating the business of insurance *
* * unless such Act specifically relates to the business of
insurance.'' (15 U.S.C. 1012(b)).
    \6\ See section 104(d)(1).
---------------------------------------------------------------------------

    The Petitioner contends that section 104(d) expressly preempts
state laws or actions that discriminate against ``depository
institutions'' or their affiliates. It urges the FDIC to exercise its
authority under sections 8 and 9 of the FDI Act to adopt rules to make
it clear that state laws, rules, or actions are preempted under section
104(d) when they provide for disparate treatment between an out-of-
state national bank or in-state bank and an out-of-state state bank, or
its affiliates. The Petitioner suggests, alternatively, that the FDIC
adopt a statement of policy addressing the scope and effect of section
104(d) for state banks. The Petitioner asserts that although state
banks subject to FDIC regulation are the intended beneficiaries of this
express preemption, the preemption is not being utilized by state banks
because the statute is relatively new and complex and the relevant
provisions have not be construed by any

[[Page 13416]]

agency or court. It states that rules are needed in view of the
complexity and general lack of understanding of section 104(d).
    The Petitioner argues that the breadth of section 104(d) preemption
and its purpose to reach state law or actions that would provide
disparate treatment for any type of depository institution (including
an out-of-state state bank) in relation to its competitors is evident
from section 104(d)'s language.
    The Petitioner has described certain actions that if taken by the
FDIC will, in its opinion, clarify by regulation or policy statement
that state laws, rules, or actions cannot differentiate between in-
state and out-of-state banks. The Petitioner specifically requests that
the FDIC issue a rule or policy statement: (a) Stating that the section
104 preemption applies to insured banks and their subsidiaries,
affiliates and associated persons; (b) defining a ``person'' to include
a depository institution, subsidiary, affiliate, and associated person;
(c) stating that the word restrict'' in section 104(d)(1) includes any
state law, rule, interpretation or action that calls for any limitation
or requirement; (d) addressing each of the four non-discrimination
provisions in section 104(d)(4) to confirm that each is a distinct test
and that any state law or action that fails one test is preempted; (e)
addressing the scope of ``actions'' in section 104(d)(4) to include all
types of formal or informal administrative actions by any state or
local governmental entity, including decisions with respect to civil
enforcement of state rules; (f) addressing section 104(d)(4)(D)(i) in
light of the terms used in subparagraph (ii) to specify that paragraph
(i) addresses treatment under state law of an out of state, state bank
which would be an ``insured depository institution,'' that is different
from the treatment of any national bank or in-state state bank which
would be an ``other person engaged in the same activity'' under these
provisions; and (g) defining ``state law'' to include laws, ordinances
and rules of political subdivisions, including any counties and
municipalities.
    The FDIC requests the public's views on the following specific
issues:
    4-1. GLBA is a not codified as part of the FDI Act, is silent as to
rulemaking and applies to all insured depository institutions. What
barriers, if any, would there be to the FDIC adopting a regulation or
policy statement implementing section 104?
    4-2. What considerations should the FDIC take into account that
either support or challenge the proposition that section 104 preempts
state law in the manner described by Petitioner?
    4-3. What barriers, if any, would there be to the FDIC adopting a
regulation or policy statement applicable to all insured depository
institutions based on section 104?
    4-4. Is it reasonable for the FDIC to read section 104 as having
some application to interstate banking operations in general?
    4-5. The areas of section 104 Petitioner identifies for rulemaking
are very discrete but taken together may have a broad impact. What are
the overall implications (favorable as well as negative) of adopting
the section 104 regulatory guidance suggested by the Petitioner?
5. Implementation of Section 27 of the FDI Act (Which Permits State
Depository Institutions To Export Interest Rates)
    Section 27 of the FDI Act (``section 27'') \7\ establishes the
maximum amount of interest that a state-chartered insured depository
institution or insured branch of a foreign bank (collectively, ``state
bank'') may charge its borrowers. Generally, the statute authorizes a
state bank to charge interest at the greater of the rate allowed by the
laws of the State, territory, or district where the bank is located or
not more than one percentage point above the discount rate on 90-day
commercial paper at the Federal Reserve bank for the Federal Reserve
district where the bank is located.\8\ The statute also specifies that
state banks may charge the rates authorized by the statute
``notwithstanding any State constitution or statute which is hereby
preempted for the purposes of this section.'' \9\ As is the case under
section 85 of the NBA for national banks, section 27 allows state banks
to charge out-of-state borrowers interest at the rates allowed by the
law of the State where the bank is located, even if such rates exceed
the usury limitations imposed by the borrower's state of residence.\10\
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    \7\ 12 U.S.C. 1831d.
    \8\ Section 27 was added to the FDI Act by section 521 of the
Depository Institutions Deregulation and Monetary Control Act of
1980 (``DIDMCA'').
    \9\ Section 27(a) of the FDI Act; see generally Greenwood Trust
Co. v. Commonwealth of Massachusetts, 971 F.2d 818 (1st Cir.), cert.
denied, 506 U.S. 1052 (1993).
    \10\ This ability to charge interest at the rates allowed by the
state where the bank is located is often referred to as the
``exportation doctrine.''
---------------------------------------------------------------------------

    Section 27 contains two subsections which are patterned after
provisions in the NBA. Subsection (a) corresponds to section 85 of the
NBA (``section 85''),\11\ which addresses the interest rates that
national banks are authorized to charge their borrowers. Subsection (b)
corresponds to section 86 of the NBA (``section 86''),\12\ which
addresses penalties and limitations of actions for charging interest in
excess of the amount allowable under section 85.
---------------------------------------------------------------------------

    \11\ 12 U.S.C. 85.
    \12\ 12 U.S.C. 86.
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    Because section 27 was enacted to provide state banks ``competitive
equality'' with national banks and is patterned after the corresponding
provisions in the NBA, the FDIC and the courts have construed section
27 in virtually the same manner as the OCC and the courts have
construed sections 85 and 86. For example, in General Counsel's Opinion
No. 10 (``GC Opinion No. 10''),\13\ the FDIC's General Counsel
concluded that section 27 and section 85 should be construed in pari
materia and that the term interest, for purposes of section 27,
includes those charges that a national bank is authorized to charge
under section 85 and the OCC's interpretive rule defining interest for
purposes of section 85.\14\ In General Counsel's Opinion No. 11 (``GC
Opinion No. 11'') \15\ the FDIC's General Counsel interpreted section
27 as applying to state banks operating interstate branches in a manner
similar to the OCC's interpretation of the application of section 85 to
national banks operating interstate branches. In GC Opinion No. 11 it
was observed that, like an interstate national bank under section 85, a
state bank is ``located'' in the state where it is chartered and in
each state where it has a branch. GC Opinion No. 11 also addressed the
criteria for determining when the state laws imposed by the bank's home
state or host state should govern the amount of interest authorized on
a loan transaction. In addition, the FDIC has interpreted section 27 as
providing state banks: (a) The same ``most favored lender'' status
under section 27 as national banks are provided under section 85; (b)
the same right to export interest authorized by the state laws of the
state where the bank is located to out-of-state borrowers; and (c) the
same exclusive remedy for usury violations as is provided national
banks under section 86.\16\
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    \13\ GC Opinion No. 10, 63 FR 19258 (Apr. 17, 1998).
    \14\ 12 CFR 7.4001(a).
    \15\ GC Opinion No. 11, 63 FR 27282 (May 18, 1998).
    \16\ FDIC Advisory Opinion No. 81-3, February 3, 1981, reprinted
in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ] 81,006;
FDIC Advisory Opinion No. 81-7, March 17, 1981, reprinted in [1988-
1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ] 81,008; FDIC
Advisory Opinion No. 02-06, December 19, 2002, reprinted in Fed.
Banking L. Rep. (CCH) ] 82-256.

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[[Page 13417]]

    The Petitioner observes that the OCC and OTS have adopted rules
codifying the scope of the relevant parallel interest provisions \17\
contained in their respective statutes.\18\ Therefore, the Petitioner
requests that the FDIC adopt parallel provisions by rule to allow state
banks to operate in a matching legal framework under section 27.
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    \17\ 12 CFR 7.4001; 12 CFR 560.110.
    \18\ The relevant parallel interest provision for the OTS is
section 4(g) of the Home Owners Loan Act (12 U.S.C. 1463(g)), which
was derived from section 522 of DIDMCA.
---------------------------------------------------------------------------

    Therefore, the FDIC requests the public's views on the following
specific issues:
    5-1. Should the FDIC adopt a parallel rule implementing section 27
for state banks similar to 12 CFR 7.4001 and 12 CFR 560.110?
    5-2. Should any other issues be addressed by rulemaking to provide
state banks competitive equality with national banks regarding section
27? For example, 12 CFR 7.5009 addresses the location under section 85
of national banks operating exclusively through the Internet. Is a
similar rule needed for state banks under section 27?
    Under section 525 of the Depository Institutions Deregulation and
Monetary Control Act states may ``opt-out'' of coverage under section
27 at any time.\19\ The FDIC believes that Iowa, Puerto Rico, and
Wisconsin are the only jurisdictions that have exercised this authority
and not rescinded it.
---------------------------------------------------------------------------

    \19\ Section 525 of DIDMCA, like section 528 that provides
lenders a choice of interest rates, is contained in various notes in
the United States Code following the various sections that they
affect. See, e.g., 12 U.S.C. 1831d (note).
---------------------------------------------------------------------------

    Therefore, the FDIC requests the public's views on the following
specific issue:
    5-3. What effect would the exercise of the authority to opt-out of
coverage under section 27 have on the rule or rules the Petitioner is
requesting?

IV. Public Hearing

    The FDIC will hold a hearing to obtain the public's views on all
issues raised by the Petition. The hearing will be held on Tuesday, May
24th, 2005 from 8:30 a.m. to 5 p.m. in the Board room at the FDIC's
headquarters, 550 17th Street, NW., Washington, DC. Hearing Officers
designated by the FDIC will preside over the hearing. The hearing will
be informal, and the rules of evidence will not apply. However, only
the Hearing Officers may question a participant during a presentation.
Each participant making an oral presentation at the hearing will be
limited to 15 minutes. While oral presentations are limited to 15
minutes, there is no limit on the length of a participant's written
statement.
    Anyone wishing to make an oral presentation at the hearing must (i)
deliver a written request to the Executive Secretary, Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429 no
later than 5 p.m. on Monday, May 9th, 2005; and (ii) deliver a copy of
his or her written statement plus a two-page (or less) summary to the
Executive Secretary no later than 5 p.m. on Monday, May 16th, 2005.
Anyone wishing to submit a written statement of his or her views
without making an oral presentation at the hearing may submit a
limited-appearance statement. All limited-appearance statements must be
received by the Executive Secretary no later than 5 p.m. on Monday, May
16th, 2005. Attendance at the hearing is not required in order to
submit a written statement. Each request to make an oral presentation
and each participant's statement must include the participant's name,
address, telephone number, e-mail address, and, if applicable, the name
and address of the institution or organization the participant
represents.
    Opportunities to make an oral presentation at the hearing are
limited, and not all requests may be granted. The FDIC will notify each
person who has submitted a request to make an oral presentation at the
hearing whether the FDIC will be able to accommodate his or her
request. The notice for each person whose request has been granted will
include the time scheduled for his or her presentation and a tentative
agenda. Depending upon the number of participants requesting an oral
presentation, participants may be organized into panels of two or three
to accommodate as many participants as possible.
    The hearing will be transcribed. The FDIC will provide attendees
with any auxiliary aids (e.g., sign language interpretation) required
for this meeting. Those attendees needing such assistance should call
(202) 416-2089 (Voice); or (202) 416-2007 (TTY), to make necessary
arrangements.

    Dated in Washington DC, this 16th day of March, 2005.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

Appendix: Petition for FDIC Rulemaking Providing Interstate Banking
Parity for Insured State Banks, by Letter From the Financial Services
Roundtable, 1001 Pennsylvania Ave., NW., Suite 500 South, Washington,
DC 20004, Tel 202-289-4322, Fax 202-628-2507, dated March 4, 2005

March 4, 2005

Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation, 550
Seventeenth Street, NW., Washington, DC 20429.

Re: Petition for FDIC Rulemaking Providing Interstate Banking Parity
for Insured State Banks

    Dear Mr. Feldman: The Financial Services Roundtable \1\
(``Roundtable'') respectfully petitions the Federal Deposit Insurance
Corporation (``FDIC'') to promulgate rules under the Federal Deposit
Insurance (``FDI'') Act and Section 104(d) of the Gramm-Leach-Bliley
(``GLB'') Act, 15 U.S.C. 6701, to provide parity for state banks and
national banks. Specifically, the proposed rule would provide that a
state bank's home state law governs the interstate activities of
insured state banks and their subsidiaries to the same extent that the
National Bank Act governs a national bank's interstate business.
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    \1\ The Financial Services Roundtable represents 100 of the
largest integrated financial services companies providing banking,
insurance, and investment products and services to the American
consumer. Roundtable member companies provide fuel for America's
economic accounting directly for $18.3 trillion in managed assets,
$678 billion in revenue, and 2.1 million jobs.
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    The FDIC has ample authority to take each of the requested actions
pursuant to the broad delegation of authority in the FDI Act. It is now
clear that FDIC action is required to achieve the result that Congress
sought in the 1997 amendment to the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (``Riegle-Neal I''), Pub. L. 103-328,
108 Stat. 238. See Riegle-Neal Amendments Act of 1997, Pub. L. 105-24
(1997) (amending 12 U.S.C. 1831a(j)) (``Riegle-Neal II''). The
requested rulemaking would implement the historic decision of Congress
in 1997 to provide competitive equality for state banks and national
banks in interstate banking.
    The Roundtable submits that it is both necessary and timely for the
FDIC to adopt rules making clear the ability of state banks operating
interstate to be

[[Page 13418]]

governed by a single framework of law and regulation to the same extent
as national banks. Such an action would ensure the continued vitality
of the dual banking system. Accordingly, the Roundtable requests that
the FDIC promulgate rules that:
    1. Clarify that the governing law applicable to activities
conducted in a host state by a state bank that has an interstate branch
in that state is its home state law to the same extent that host state
law is preempted by the National Bank Act. The FDIC should make clear
that ``home'' state law applies to an out-of-state state bank in a
``host'' state to the same extent as the National Bank Act applies to
an out-of-state national bank, whether the business of the bank is
conducted by the bank through the host state branch, by or through an
operating subsidiary, or by any other lawful means.
    2. Clarify that the governing law applicable to activities
conducted by a state bank in a state in which the state bank does not
have a branch is its home state law to the same extent that host state
law is preempted by the National Bank Act. The FDIC should make clear
that a state bank may operate under home state law in any other state
to the same extent that an out-of-state national bank may operate under
the National Bank Act or under rules promulgated by the Comptroller of
the Currency (``OCC''). Such a rule would give effect to the policy
underlying Riegle-Neal II and the preemption of discriminatory state
law provided in Section 104(d) of the Gramm-Leach-Bliley (``GLB'') Act
(``Section 104(d)''), 15 U.S.C. 6701(d).
    3. Clarify that the law applicable to activities conducted by an
operating subsidiary of a state bank is the same law applicable to the
bank itself. The FDIC should clarify that when a state bank has
established an ``operating subsidiary'' pursuant to its home state law,
that subsidiary will be treated under FDIC rules as if it were the
state bank itself. Thus, the operating subsidiary will be subject to
state law outside its home state in the same manner as its bank parent
is subject to such state law. Such rules would allow state bank
operating subsidiaries to engage in interstate business under the same
uniform rules as its parent bank, just as national bank operating
subsidiaries operate under uniform OCC rules.
    4. Adopt rules construing the scope and application of Section
104(d) to make clear that a state law or action is expressly preempted
under Section 104(d) when it imposes a requirement, limitation, or
burden on a state bank, or its affiliate, that does not also apply to
an out-of-state national bank or in-state bank. Section 104(d)
expressly preempts state laws or actions that discriminate against
``insured depository institutions','' or their affiliates, as defined
in the FDI Act. Accordingly, Section 104(d) provides independent basis
and support for each of the above requests. Moreover, through
implementing rules, the FDIC would provide greater certainty to insured
state banks with respect to the scope of this express federal
preemption in general. This provision is not well understood and we
believe that a rulemaking, not litigation, is the appropriate means to
carry out Congressional intent and achieve needed clarity.
    5. Implement Section 27 of the FDI Act by adopting a rule parallel
to the rules promulgated by the OCC and Office of Thrift Supervision
(``OTS''). The scope and implementation of the express preemption for
the ``interest rate'' charged in interstate lending transactions by
state and national banks under Section 27 of the FDI Act and Section 85
of the National Bank Act has been authoritatively addressed by the
courts and in agency interpretations. The OCC and OTS have adopted
rules codifying the scope of the respective statutory provisions for
federal institutions. The FDIC should adopt a parallel rule for insured
state banks and thus codify existing agency interpretations.
    In this letter, we will address (A) the urgent need for the
requested rulemaking and the real costs of inaction, (B) the FDIC's
authority to promulgate rules of the scope requested, (C) the
legislative history demonstrating that Congress specifically intended
in Riegle-Neal II to prevent erosion of the dual banking system and in
Section 104(d) to prevent disparate treatment and ensure that all banks
could compete on relatively equal terms in today's interstate financial
services marketplace, and (D) the scope of the proposed rule provisions
in greater detail. The Roundtable appreciates the FDIC's consideration
of this petition.

A. A Rulemaking Is Necessary and the Costs of Inaction Will Be
Significant

    The requested FDIC action in this petition is necessary to complete
the task of restoring balance in the dual banking system that Congress
sought to achieve in 1997. Riegle-Neal II reversed a decision in 1994
to treat state and national banks differently with respect to
``applicable law.'' In Riegle-Neal I, state and national banks were
under the same rules for the establishment of interstate branches.
However, Riegle-Neal I provided that when a national bank branched
interstate into a host state, it was in effect generally subject to the
National Bank Act,\2\ while the state bank in a parallel case was made
subject to host state law. While interstate national banks could
operate under a single law, interstate state banks were subjected to
multiple state laws.
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    \2\ The Riegle-Neal applicable law provision for national banks
states: ``(A) In general The laws of the host State regarding
community reinvestment, consumer protection, fair lending, and
establishment of intrastate branches shall apply to any branch in
the host State of an out-of-State national bank to the same extent
as such State laws apply to a branch of a bank chartered by that
State, except--(i) when Federal law preempts the application of such
State laws to a national bank; or (ii) when the Comptroller of the
Currency determines that the application of such State laws would
have a discriminatory effect on the branch in comparison with the
effect the application of such State laws would have with respect to
branches of a bank chartered by the host State.'' 12 U.S.C.
36(f)(1)(A). The effect of this provision is that any host state
law, including a community reinvestment, consumer protection, fair
housing, or intrastate branching law, that is preempted under the
National Bank Act does not apply to the national bank branch (or the
bank) in the host state.
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    That disparity led Congress in 1997 to amend Riegle-Neal to adopt
an applicable law provision for state banks that closely tracked the
national bank provision in Section 36(f) of the National Bank Act.\3\
The purpose of the 1997 amendment, which was stated repeatedly by its
sponsors, was to provide parity between state banks and national banks
with respect to interstate banking.\4\ By ``parity,'' they plainly
meant the ability of state banks to do business interstate under a
uniform law (home state law) just as national banks were authorized to
do under Riegle-Neal.\5\
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    \3\ Compare 12 U.S.C. 1831a(j)(1) (text in footnote 9) with 12
U.S.C. 36(f)(1)(A) (text in footnote 2).
    \4\ As stated by the led sponsor in the House, Rep. Roukema:
``The essence of this legislation is to provide parity between
state-chartered banks and national banks.'' 143 Cong. Rec. H3088
(daily ed. May 21, 1997).
    \5\ See, e.g., statements by the principal sponsors of the 1997
Amendment, Rep. Roukema (``* * * we have * * * with this action,
protected the dual banking system while at the same time gaining the
advantages of interstate banking''), 143 Cong. Rec. H4231 (daily ed.
June 24, 1997), and Chairman D'Amato (``Enactment of H.R. 1306 also
would bolster efforts of New York and other states to make sure that
State[-]chartered banks have the powers they need to compete
efficiently and effectively in an interstate environment''), 143
Cong. Rec. S5637 (daily ed. June 12, 1997).
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    Over the last decade, the federal charters for national banks and
federal thrifts have been correctly interpreted by the OCC and OTS,
with the repeated support of the federal courts, to provide broad
federal preemption of state laws that might appear to apply to the
activities or operations of a banking institution in that state. The
result is that, in general, national banks and

[[Page 13419]]

federal thrifts now can do business across the country under a single
set of federal rules. This framework is appropriate for these federal
entities in a national financial marketplace. At the same time, in this
marketplace a uniform national bank system based on preemption and
interstate banking undoubtedly presents a major challenge to the dual
banking system and state banks.
    In contrast to the general certainty enjoyed by federal
institutions, there is widespread confusion and uncertainty with
respect to applicable law governing state banks engaged in interstate
banking activities. The current uncertainty governing the interstate
activities of state banks has had, and will continue to have, several
significant adverse effects. Uncertainty carries the potential for
litigation and enforcement actions arising from disagreements between
regulators, or between a host state regulator and a state bank engaged
in interstate activity. Regulatory uncertainty deters state banks from
pursuing profitable business opportunities. When a state bank converts
to a national charter to gain greater legal certainty, it incurs
substantial expense. Each of these consequences has economic
significance for state banks and direct implications for the FDIC's
enforcement and safety-and-soundness responsibilities.
    Moreover, a series of recent major merger and conversion
transactions has resulted in an unprecedented migration of assets to
the national banking system. It is now apparent that, absent a more
certain federal regulatory environment, the state charter will continue
to be perceived as less competitive than a national bank charter.
    This is the very result that Congress intended to prevent.\6\ In
1994, 1997 and 1999 Congress took bold and historic actions to provide
uniform federal rules to govern all interstate banking and to ensure
that individual state laws could not disfavor any type of depository
institution in the multistate financial services marketplace. It is now
apparent that the express terms of these statutes have not on their own
force been able to ensure, as Congress intended in enacting Riegle-Neal
II, that state banks can participate in interstate banking business on
a par with national banks and that state banks face significant state
law obstacles when they seek to do business outside their home state.
As a consequence, the state banking system, as we have known it, is
fundamentally threatened.
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    \6\ The statement by Rep. LaFalce before final House passage of
the 1997 amendments captures the purpose to redress the negative
effects of the 1994 Riegle-Neal applicable provision for state
banks: ``Why [must we act now]? Well, it is due to the fact that the
national bank regulator has the authority to permit national banks
to conduct operations in all the states with some level of
consistency. In contrast, under the existing interstate legislation,
state banks branching outside their home state must comply with a
multitude of different state banking laws in each and every state in
which they operate.'' 143 Cong. Rec. H3094 (daily ed. May 27, 1997).
See the discussion of the legislative history in the next section.
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    In the national financial services marketplace, consumers and
providers benefit when banks can provide products and services under a
single legal framework applicable across state lines. At the same time,
bank customers and the economy also benefit from the diversity,
innovation and checks provided by a strong and dynamic dual banking
system involving large, regional, and small banks. From the perspective
of all parties--consumers, financial institutions, and regulators--
further development of a framework of state bank regulation and
supervision that is effective, efficient, and seamless across state
lines is the right goal. In today's multistate system, that is an
essential goal. A banking system in which virtually all interstate
banks have national charters and state banks are overwhelmingly local
is not the dual banking system this country has historically enjoyed.
The dual banking system will retain the dynamic vitality that has made
it a mainspring for progress and strength in banking only if it can
provide meaningful interstate competitive parity for all interstate
state banks, whether cross-border, regional, or national. Significant
and unacceptable disparity exists today.
    The FDIC has the authority, tools, and responsibility under the FDI
Act to correct this imbalance. To implement Congressional intentions it
now must promptly provide a uniform interstate applicable law regime
for state banks and give practical reality to the express preemption of
discriminatory state laws.

B. The FDIC Has Authority To Adopt the Requested Rules

    The FDIC has ample rulemaking authority to address each of the
Roundtable's requests. Section 9 of the FDI Act vests the FDIC with
broad authority to adopt rules ``it may deem necessary to carry out the
provisions of this Act or of any other law which it has the
responsibility of administering or enforcing.'' 12 U.S.C. 1819.\7\
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    \7\ The FDIC's rulemaking authority parallels the OCC's
authority. See 12 U.S.C. 93(a) ((``the Comptroller of the Currency
is authorized to prescribe rules and regulations to carry out the
responsibilities of the office''). The statutory provision
authorizing the OCC to issue rules is directly analogous to Section
9 of the FDI Act. Compare 12 U.S.C. 1819 (FDIC vested with authority
``to prescribe * * * such rules and regulations as it may deem
necessary to carry out the provisions of this chapter or of any
other law which it has the responsibility of administering or
enforcing * * *'').
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    The FDIC is vested with responsibility for administering Sections
24 and 27 of the Act to accomplish what Congress intended. Congress,
through Section 9, has vested the FDIC with authority to carry out
Sections 24 and 27. Moreover, under basic principles of administrative
law, agency rules that fill or address a statutory gap generally are
afforded considerable deference by courts. See Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 865 (1984)
(``Chevron''). Section 9's ``generally conferred authority'' makes it
apparent ``that Congress would expect the agency to be able to speak
with the force of law when it addresses ambiguity in the statute or
fills a space in the enacted law, even one about which `Congress did
not actually have an intent' as to a particular result.'' United States
v. Mead, 533 U.S. 218, 229 (2001) (quoting Chevron, 467 U.S. at 845).
    Riegle-Neal I and II fundamentally changed federal law for state
and national banks by authorizing banks to engage fully in banking
transactions in other states through interstate branching.\8\ As a
corollary, Riegle-Neal I provided federal ``applicable law'' statutes
to govern the new interstate banking regime. As originally enacted, the
respective applicable law provisions treated national and state banks
differently. Riegle-Neal II sought to redress that disparity and
provided substantively the same rule for state banks as was originally
provided for national banks.\9\ The FDIC plainly has authority to
implement Riegle-Neal II.
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    \8\ Prior to enactment of Riegle-Neal, neither state nor
national banks could establish branches outside their home state.
Moreover, except with respect to interest charges under 12 U.S.C. 85
and 12 U.S.C. 1831d, federal law did not provide guidance to either
state banks or national banks regarding the law applicable to
transactions that banks made with customers outside their home
states.
    \9\ See generally section 24(j):
    (j) ACTIVITIES OF BRANCHES OF OUT-OF-STATE BANKS.--
    (1) APPLICATION OF HOST STATE LAW.--The laws of a host State,
including laws regarding community reinvestment, consumer
protection, fair lending, and establishment of intrastate branches,
shall apply to any branch in the host State of an out-of-State
national bank. To the extent host State law is inapplicable to a
branch of an out-of-State bank in such host State pursuant to the
preceding sentence, home State law shall apply to such branch.
    (2) ACTIVITIES OF BRANCHES.--An insured State bank that
establishes a branch in a host State may conduct any activity at
such branch that is permissible under the laws of the home State of
such bank, to the extent such activity is permissible either for a
bank chartered by the host State (subject to the restrictions in
this section) or for a branch in the host State of an out-of-State
national bank.
    (3) SAVINGS PROVISION.--No provision of this subsection shall be
construed as affecting the applicability of--
    (A) any State law of any home State under subsection (b), (c),
or (d) of section 44; or
    (B) Federal law to State banks and State bank branches in the
home State or the host State.
    (4) DEFINITIONS.--The terms ``host State'', ``home State'', and
``out-of-State bank'' have the same meanings as in section 44(f). 12
U.S.C. 1831a(j).

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[[Page 13420]]

    The FDIC also has the authority to implement the nondiscrimination
provisions of Section 104(d) insofar as the GLB Act addresses state
insured depository institutions and to construe the express preemption
of discriminatory state law provided in Section 104(d). Section 9 vests
the FDIC with authority to promulgate rules to carry out any statute
the FDIC is responsible for administering or enforcing. The provisions
of the GLB Act that touch upon state depository institutions fall
within the regulatory ambit of the FDIC.
    A statutory gap, or a clarification of a statute to effect
Congressional intent, can be--and should be--addressed by an agency
rule. Where, as here, a statute is ambiguous regarding its application
to ``a particular result'' (Mead, 533 U.S. at 229), courts have long
recognized that agencies with rule-making authority must be permitted
to address the statutory gap as ``necessary for the orderly conduct of
its business.'' United States v. Storer Broadcasting Co., 351 U.S. 192,
202-03 (1956) (finding also that the statute ``must be read as a whole
and with appreciation of the responsibilities of the body charged with
its fair and efficient operation''), National Petroleum Refiners Ass'n,
482 F.2d at 681. (``[T]here is little question that the availability of
substantive rule-making gives any agency an invaluable resource-saving
flexibility in carrying out its task of regulating parties subject to
its statutory mandate.''). Courts have consistently applied these
administrative law principles--and extended Chevron deference--to rules
and regulations issued by the FDIC under its broad rulemaking
authority.\10\ There can be little doubt that Section 9 of the FDI Act
vests the FDIC with authority to address these issues.\11\
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    \10\ See, e.g., National Council of Savings Institutions v.
FDIC, 664 F.Supp. 572 (D.D.C. 1987) (sustaining FDIC regulation
governing the proper relationship between FDIC-insured banks and
their securities-dealing ``subsidiaries'' or ``affiliates'') See
also Wells Fargo Bank, N.A. v. FDIC, 310 F.3d 202, 208 (D.C. Cir.
2002) (affording Chevron deference to FDIC rule for ``second
generation'' transactions, because statute was silent as to
treatment of these transactions and rule would ``implement
Congressional intent because it prevents financial institutions from
manipulating the system''); America's Community Bankers v. FDIC, 200
F.3d 822, 834 (D.C. Cir 2000) (upholding FDIC denial of refund
assessment under Chevron, where statute merely stated that FDIC
could utilize ``any other factors'' to ``set'' the assessment amount
and thus was ``facially ambiguous''); Federal Deposit Ins. Corp. v.
Sumner Financial Corp., 451 F.2d 898, 902-903 (5th Cir. 1971)
(affording ``great deference'' to FDIC interpretation of FDI Act
through regulation concerning advertising by regulated banks).
    \11\ Riegle-Neal I and II provide express ability for a state
bank to establish a branch in a host state, to thus gain the ability
to engage in any or all of its permitted activities in that host
state, and to apply its home state law (unless a national bank, and
thus the state bank, must apply host state law) to that branch. But
the statutory text does not directly address the governing law
applicable to the state bank's activities permitted in the host
state under the authority provided by Riegle-Neal, but conducted by
the bank outside of its branch, by an operating subsidiary or
another means. An ordinary task of a regulatory agency is to
construe such a statutory provision in a rule.
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    There is no reason that a rulemaking by the FDIC similar to ones
conducted by the OCC should be analyzed any differently. The National
Bank Act does not expressly address the law applicable to a national
bank outside states where it has branches. Prior to the adoption of the
OCC rules, a number of courts determined that national banks were
subject to state laws that did not conflict with the provisions of the
National Bank Act.\12\ Nonetheless, the courts have upheld the OCC
rules and determinations that make clear that national banks and their
operating subsidiaries are governed by the National Bank Act wherever
they do business. These OCC rules have generally received Chevron
deference.\13\
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    \12\ See National State Bank v. Long, 630 F.2d 981 (3d Cir.
1980); Perdue v. Crocker National Bank, 702 P.2d 503 (Cal. 1985);
Best v. U.S. National Bank, 739 P.2d 554 (Or. 1987).
    \13\ See, e.g., NationsBank of N.C. v. VALIC, 513 U.S. 251
(1995); Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 33
(1996); Wachovia Bank, N.A. v. Watters, 334 F. Supp. 2d, 957, 963-65
(W.D. Mich. 2004); Wachovia v. Burke, 319 F. Supp. 2d 275 (D. Conn.
2004).
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    Further, under Section 8 of the FDI Act, an insured bank may be
subject to an enforcement action of the FDIC if ``in the opinion of the
appropriate Federal banking agency, any insured depository institution,
depository institution which has insured deposits, or any institution-
affiliated party is engaging or has engaged, or the agency has
reasonable cause to believe that the depository institution or any
institution-affiliated party is about to engage, in an unsafe or
unsound practice in conducting the business of such depository
institution, or is violating or has violated, or the agency has
reasonable cause to believe that the depository institution or any
institution-affiliated party is about to violate, a law, rule, or
regulation.'' 12 U.S.C. 1818(b)(1). The FDIC has authority to adopt
rules with respect to legal compliance by insured banks that provide
guidance to those banks and agency staff charged with making
supervisory, enforcement and examination decisions. That can be
accomplished by using authority under Section 9 to address issues of
compliance with state law, including the meaning and scope of Section
104.\14\
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    \14\ The FDIC previously has engaged in a rulemaking in
comparable circumstances. In 1982, the FDIC adopted a Statement of
Policy addressing the applicability of the Glass-Steagall Act to
securities activities of subsidiaries of insured nonmember banks. 47
FR 38984, September 3, 1982. That Statement of Policy construed
Section 20 of the Glass-Steagall Act and concluded that the
restrictions in that section on securities affiliates of insured
banks did not prevent insured nonmember banks subject to the FDIC's
regulation and supervision from having ``bona fide'' securities
affiliates or subsidiaries. The provisions of Glass-Steagall
construed in the Statement of Policy (like the provisions of GLB at
issue here) were not part of the FDI Act, but the FDIC issued a rule
to provide clear guidance to insured state banks, and the exercise
of the FDIC's rulemaking authority in that case was upheld. See
National Council of Savings Institutions v. FDIC, 664 F.Supp. 572
(D.D.C. 1987). Issuing guidance to state insured banks concerning
the scope of Section 104 of the GLB Act is a necessary and
appropriate exercise of the FDIC's authority to carry out its
regulatory mandate.
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C. The Requested Rulemakings Would Advance the Congressional Purpose To
Prevent Erosion of the Dual Banking System by Maintaining Parity
Between State and National Banks

    Beginning with the enactment of Section 27, Congress has taken bold
and historic action on more than one occasion to preempt a wide range
of state laws so that state banks can operate on a par with national
banks in the multistate financial services marketplace that has come
into existence in recent decades. The broad sweep of what Congress
intended to accomplish is evident in the terms and legislative history
of Riegle-Neal II and Section 104(d). Those statutes further the
decades-old principle of competitive equality embodied in federal law
and repeatedly recognized by the courts and the FDIC.\15\ The requested
FDIC rule would implement these Congressional purposes.
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    \15\ See First Nat'l Bank v. Walker Bank & Trust Co., 385 U.S.
252 (1966); First Nat'l Bank in Plant City v. Dickinson, 396 U.S.
122 (1969); FDIC Advisory Letter 00-5.
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    The principle of fundamental competitive parity has been woven by
Congress and the courts into the very fabric of the dual banking
system. The dual system was created when Congress created the national
bank system alongside the state banking system. In the Federal Reserve
Act, Congress expressly provided for state banks, as well as national
banks, to be member

[[Page 13421]]

banks. The McFadden Act as passed and as amended in the 1930s embodied
a federal policy of competitive equality in branching. In the FDI Act,
deposit insurance was made available to all state and national banks.
    Since 1980, Congress has amended the FDI Act to ensure state-
national bank parity, to ensure a strong and balanced dual banking
system, and to prevent discriminatory state laws from favoring one type
of charter over another. In 1980, in response to the challenges
presented by the 1978 Marquette case, Congress provided interstate
usury parity for state banks in Section 27 of the FDI Act.\16\ See 12
U.S.C. 1831d(a). In 1991, Congress addressed state laws providing state
banks more expansive powers than national banks, a disparity in favor
of state banks that Congress believed had implications for safety-and-
soundness, bank competitiveness, and the dynamic for change in the dual
banking system. That enactment provided that state bank activities
would be limited to activities permissible for national banks, unless
the FDIC determined that for a state bank to engage in an otherwise
impermissible activity would not pose a significant risk to the deposit
insurance fund. See 12 U.S.C. 1831a(a)-(e). This policy of parity was
continued in Riegle-Neal and the GLB Act.
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    \16\ See Marquette Nat'l Bank of Minneapolis v. First of Omaha
Serv. Corp., 439 U.S. 299 (1978).
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1. The Legislative History of Riegle-Neal Amendments Demonstrates
Congressional Purpose to Provide Parity Between National Banks and
State Banks

    In Riegle-Neal, Congress reversed more than 150 years of federal
policy and enacted comprehensive federal laws governing interstate
banking for all banks. Except for the applicable law provisions,
Riegle-Neal as originally enacted gave parallel treatment to state and
national banks. In 1997, Congress recognized that the original state
bank applicable law provision was placing state banks at a substantial
disadvantage and was undermining the state system. It acted swiftly to
redress the state-national bank balance in Riegle-Neal II. The specific
drafting approach, the underlying policy and the express purpose of
that 1997 statute all sought to ensure that state banks would operate
under a uniform interstate ``applicable law'' regime based on home
state law parallel to the national bank regime. It sought to ensure
parity in the dynamic interstate banking environment.
    The legislative history of Riegle-Neal II makes clear that
Congress' goal was to facilitate competitive equality for state banks
and national banks in interstate banking. The 1997 amendments
originated in the House Banking Committee. At final passage, the
principal sponsor of the bill, Rep. Marge Roukema (R-NJ), chair of the
Subcommittee on Financial Institutions, and senior members of the House
Banking Committee, on a bipartisan basis, expressed the intent to
provide a level playing field, not narrowly in terms of competition
between state and national bank branches, but broadly in terms of the
ability of state banks to match national banks in doing business across
the country.
    As Rep. Roukema stated when introducing the bill for vote on the
House floor: ``The essence of this legislation is to provide parity
between state-chartered banks and national banks. * * * This
legislation is critical to the survival of the dual banking system. * *
* [A] strong state banking system is necessary for the economic well-
being of the individual States and for innovation in financial
institutions.'' In her final statement before final passage, she
repeated the necessity and purpose of the bill: ``[W]e have * * * with
this action, protected the dual banking system while at the same time
gaining the advantages of interstate banking.''\17\ No contrary
statement was made by any House or Senate member during the floor
debates preceding final passage.
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    \17\ See 143 Cong. Rec. H3088 (daily ed. May 21, 1997), H4231
(daily ed. June 24, 1997).
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    Representative Roukema's statements were echoed and reinforced by
senior members from each political party. On the Republican side, Rep.
Mike Castle (R-DEL) addressed state bank's competitive needs ``across
the Nation'': ``As we enter the age of interstate banking and
branching, it is necessary to ensure that state banks can compete
fairly with national banks as more banking is done between States and
across the Nation. This legislation will ensure that there is a level
playing field between state and national banks.''\18\ Rep. Doug
Bereuter (R-NEB) emphasized the benefits for the state system, ``This
Member was intimately involved in the original Riegle-Neal Act and was
concerned at that time that States' rights were protected. * * * This
Member believes that this measure actually reinforces States' rights by
maintaining the viability of the state charter by ensuring parity with
the national bank charter * * * [and] urges his colleagues to join him
in approving this important protection of the dual banking
system.''\19\
---------------------------------------------------------------------------

    \18\ 143 Cong. Rec. H3095 (daily ed. May 27, 1997).
    \19\ Id. at H3094. Rep. Spencer Bacchus (R-ALA) similarly
stated: ``* * * we have heard almost unanimous testimony that the
unfortunate and unintended consequences of our failure to make these
clarifications will be the devaluation of state banking charters in
favor of national charters and the gradual decline of the state
banking system * * *'' Id. at H3095.
---------------------------------------------------------------------------

    A senior Democrat, Rep John LaFalce (D-NY), articulated the purpose
clearly: ``* * * I do believe [the bill's] passage is vital to maintain
the dual banking system. It is the dual banking system that by giving
banks a choice of Federal or state charters has helped to ensure that
our U.S. banking industry has remained strong and competitive. * * *
[In 1994, Congress did not adequately anticipate the negative impact
the interstate law would have on state banks.] Why so? Well, it is due
to the fact that the national bank regulator has the authority to
permit national banks to conduct operations in all the states with some
level of consistency. In contrast, under the existing interstate
legislation, state banks branching outside their home state must comply
with a multitude of different state banking laws in each and every
state in which they operate.''\20\
---------------------------------------------------------------------------

    \20\ Id. at H3094. Rep. Bruce Vento (D-MN) similarly stated:
``The legislation will maintain the dynamic balance between the
chartering of national and state banks and banking systems. This is
a necessary measure. It must be enacted to clarify and ensure the
viability of America's dual banking system.'' Id. at H3093.
---------------------------------------------------------------------------

    When the Riegle-Neal II bill was considered in the Senate, concern
also was expressed about the erosion of the dual banking system caused
by the disparity in applicable law enacted in Riegle-Neal. In his floor
statement preceding final Senate passage, Senate Banking Committee
Chairman Alphonse D'Amato (R-NY) stated the importance of Riegle-Neal
II for the continued vitality of the dual banking system:
    [T]he trigger date for nationwide interstate branching has passed--
June 1, 1997. This important legislation will preserve the benefits of
the dual banking system and keep the state banking charter competitive
in an interstate environment. * * *
    The bill is necessary to preserve confidence in a state banking
charter for banks with such a charter that wish to operate in more than
one state. In addition, it will curtail incentives for unnecessary
Federal preemption of State laws. Finally, the bill will restore
balance to the dual banking system by ensuring that neither charter
operates at an unfair advantage in this new interstate environment. * *
*
    New York has more than 90 State [-]chartered banks . * * * Without
this

[[Page 13422]]

legislation, the largest of these institutions may be tempted to
convert to a national charter in order to operate in more than one
State. * * *
    The current law may be unclear as to whether consistent rules are
used to determine what laws and powers apply to the out-of-state
branches of state and federally chartered banks. * * * [Summary of the
bill's terms omitted]
    Enactment of H.R. 1306 also would bolster efforts of New York and
other states to make sure that State[-]chartered banks have the powers
they need to compete efficiently and effectively in an interstate
environment.\21\
---------------------------------------------------------------------------

    \21\ 143 Cong. Rec. S5637 (daily ed. June 12, 1997).
---------------------------------------------------------------------------

2. Section 104 of the GLB Act Reflects Congress' Intent To Preempt
Discriminatory State Laws Adversely Affecting Any Depository
Institution

    Congress enacted Section 104 as part of the GLB Act in 1999 to
address state laws providing competitive inequalities among entities
offering the same financial products and services. Section 104
originated as a provision intended to sweep away a variety of state
laws that had blocked or imposed special requirements or conditions on
banks seeking to engage in insurance activities permitted under their
charter law. During the legislative process, the section was expanded
to provide express preemption of not just state insurance laws, but any
state law that placed impediments or burdens on any insured depository
institution seeking to provide financial services across the country.
Even though the non-insurance provisions of Section 104(d) are far less
detailed than the insurance provisions of Section 104, the
Congressional purpose and breadth of preemption with respect to non-
insurance activities are express in the nature and scope of the words
used.
    Congress determined that in a national financial services
marketplace individual states should not be able to impose burdens or
requirements adversely affecting any depository institution, or its
affiliates. As enacted, Section 104(d) provides broad preemption of
discriminatory state laws adversely affecting any type of depository
institution or any affiliate of a depository institution. It was
enacted for the purpose of ensuring that no insured depository
institution--including a state bank and its financial affiliates--would
be disadvantaged competitively by the operation of state law when it
engages in a financial activity, whether on its own, with an affiliate
or with ``any other person.''
    The legislative history of Section 104(d), and particularly the
paragraph (4) nondiscrimination provisions, is sparse, and thus its
purpose and intent are best drawn from its terms. It is important to
note that Section 104 addresses how banking organizations conduct the
full range of permitted financial activities, whether by the depository
institution itself or by an affiliate, including both ``traditional''
affiliates such as mortgage or finance companies and the new
affiliations permitted under the GLB Act. It focuses on state laws that
affect how depository institutions or its affiliates engage in any of
their permitted activities. This focus is evident in the Senate Banking
Committee report in 1999. That Committee had taken the lead role in
fashioning Section 104 in the form ultimately enacted. Its report
expressly addressed the section's broad, preemptive purpose with
respect to state laws that impinge on how financial activities are
conducted: ``[T]he Committee is aware that some States have used their
regulatory authority to discriminate against insured depository
institutions, their subsidiaries and affiliates. The Committee has no
desire to have State regulation prevent or otherwise frustrate the
affiliations and activities authorized or permitted by this bill. Thus,
Section 104 clarifies the application of State law to the affiliations
and activities authorized or permitted by the bill (or other Federal
law), and ensures that applicable State law cannot prevent,
discriminate against, or otherwise frustrate such affiliations or
activities.'' \22\
---------------------------------------------------------------------------

    \22\ S. Rept. 106-44 (April 28, 1999) at 11 [Senate Banking
Committee] (emphasis added).
---------------------------------------------------------------------------

    Section 104(d) has a purpose parallel to Riegle-Neal II--to ensure
that depository institutions will be able to compete across the country
on equal terms and to prevent state laws or actions from providing
disparate treatment that would disadvantage any bank vis-a-vis its
competitors. When an out-of-state state bank is subject to a state law
imposing any requirement, limitation, or burden to which a national
bank or in-state bank is not subject, Section 104(d) by its literal
terms preempts that state law.

D. In the Requested Rulemaking, the FDIC Should Clarify the Applicable
Law Governing the Interstate Activities of State Banks To Provide
Parallel Uniformity for State Banks With National Banks

    In light of the FDIC's authority under its statute and the express
purposes and policies of Congress enacted in recent statutes, the
Roundtable believes that the FDIC can, and should, adopt rules so that
state banks can operate interstate under uniform rules based on home
state law and thus parallel to national banks. We now address in turn
the specific parts of the requested rulemaking.

1. The FDIC Should Clarify That in General Home State Law Is the
Governing Law Applicable to All Activities Conducted in a Host State by
a State Bank That Has an Interstate Branch in That State to the Same
Extent That Host State Law Is Preempted by the National Bank Act

    This petition seeks a rule addressing the appropriate applicable
law to govern the activities of a state bank when it has entered a host
state with a branch as permitted by Riegle-Neal and thus has a federal
law authorization to transact all its legally permissible activities
within that host state. The requested rule would expressly permit a
state bank to apply home state law uniformly to all its business done
in a host state parallel to the ability of national banks to apply the
National Bank Act under OCC rules. Riegle-Neal II plainly provides that
if the National Bank Act preempts host state law for national banks,
home state law is the applicable law when the out-of-state bank engages
in any or all of its permissible activities in or through its host
state branch. The Riegle-Neal applicable law provisions for both state
and national banks are silent, however, with respect to the governing
law applicable to a transaction that the bank could conduct through its
branch, but is effecting without any involvement by the host state
branch.
    Riegle-Neal I authorized the bank to engage in any or all of its
permitted activities in the host state once it has a single branch
there and to apply its home state law. The only question under Riegle-
Neal II is whether Congress intended different law to apply depending
on the means used by the bank to conduct its permitted business in the
host state or the structure of the transaction (that is, whether use of
home state law as the applicable law depends on some actual branch
involvement in the bank's transaction).\23\ The legislative purpose is
clear: Congress was focused on the

[[Page 13423]]

bank's interstate activities, not the means used by the bank. By
adopting the requested rule, the FDIC will achieve the result Congress
intended.
---------------------------------------------------------------------------

    \23\ For example, although the statutory text directly addresses
the law applicable to a Tennessee bank with a branch in Oklahoma
that makes a loan to an Oklahoma resident through its Oklahoma
branch (Tennessee law applies), the text does not speak directly to
the governing law applicable to the identical loan originated by the
Tennessee bank from its home office in Tennessee (or through an
operating subsidiary).
---------------------------------------------------------------------------

    The FDIC should fill the statutory gap and clarify the application
of home state law to host state activities by adopting a rule for state
banks that provides for uniform application of home state law whenever
a national bank can apply the National Bank Act. The FDIC rule should
make it clear that the state bank's home state law will apply to all of
the bank's activities in a host state whenever a host state law would
be preempted by OCC rules for a national bank.
    Specifically, the rule should make it plain that any host state
statute, rule, order, etc., that would be preempted under the terms of
the OCC preemption rule, or an OCC interpretive letter, would also be
preempted for a state bank. If there is any uncertainty about the
application of the OCC rules in any case, the rule might allow the home
state regulator, or the FDIC, to determine in writing whether OCC rules
would provide preemption for national banks. The FDIC should reserve
the ability to make any final determination (with consultation with the
OCC as needed). In parallel fashion, the rule should provide that if
home state statute law is silent, the home state regulator can
determine by rule, order, or interpretative statement/letter what
applicable home state law is. In general, the home state regulator's
written determinations, whether by rule, order, or interpretative
statement/letter, should govern, but could be subject to review by the
FDIC, upon request of the host state regulator or upon the FDIC's own
initiative.
    The rule might also address another Riegle-Neal provision
addressing the home-host state relationship. Section 10(h)(3) of the
FDI Act expressly provides that the ``State bank supervisors from 2 or
more States may enter into cooperative agreements to facilitate State
regulatory supervision of State banks, including cooperative agreements
relating to the coordination of examinations and joint participation in
examinations.'' The state regulators, through the Conference of State
Bank Supervisors, have entered into a landmark nationwide cooperative
agreement, as well as agreements involving a specific bank by the
states where that bank has branches. The FDIC rule could provide
guidance on the effect of Section 10(h)(3).

2. The FDIC Should Clarify That Home State Law is the Governing Law
Applicable to Activities Conducted by a State Bank in a State in Which
the State Bank Does Not Have a Branch to the Same Extent That State Law
Is Preempted by the National Bank Act

    The Roundtable requests that the FDIC adopt parallel rules under
its Section 9 authority to provide that the home state law of a state
bank will apply to its activities in other states to the same extent as
the National Bank Act applies to the activities of national banks. The
rule should provide that whenever a state law is preempted by the
National Bank Act or OCC rules, it also would not apply to an out-of-
state insured bank, which would be governed by its home state charter
law. The requested rule thus would implement the terms and policies of
Section 104(d) and the policies of Riegle-Neal II and address gaps in
existing law. Like the parallel OCC rules, the requested rules would
reduce legal risk, guide legal compliance by insured banks, and aid the
FDIC in making enforcement decisions under Section 8 of the FDI Act.
Further, by promoting operating efficiency and competitiveness in
interstate banking and by reducing the real costs arising from legal
uncertainty and risk, the proposed rule would contribute to the safe
and sound operation of state banks.
    To a large extent, the Riegle-Neal and GLB legislation confirmed
the existence of a robust interstate marketplace for financial services
and provided a federal legal framework for the conduct of this
interstate commerce. Although the express purpose of Riegle-Neal II was
to provide state banks competitive equality with national banks in
interstate banking, it did not by its terms address the law applicable
to banks outside states where they maintain a branch. The GLB Act
addressed the entire financial services marketplace and, like Riegle-
Neal I and II, adopted broad federal rules to implement the goal of a
``level playing field''. In Section 104(d) Congress plainly recognized
the need for financial services providers, including insured depository
institutions, that operate across the country to do so under uniform
rules and not to be subject to individual state rules or actions that
would disadvantage some or all depository institutions. Accordingly,
Congress provided the very broad express preemption stated in Section
104(d) to address this perceived need.
    As is often the case, Congress did not address in those acts every
issue presented by the developments and problems it was considering,
nor did it address future developments. Under established principles of
administrative law, as discussed above, the federal agencies that
administer and implement statutory grants of authority have an
important role in adopting rules that implement Congressional purposes,
reasonably fill in statutory gaps and address the application of
existing laws to new developments and contexts.
    The policy of Section 104 has a similar goal as Riegle-Neal II, but
plainly addresses a different aspect of the same problem--
discriminatory state laws that disadvantage depository institutions,
including state banks, seeking to compete in interstate financial
service markets. Section 104(d) thus directly informs and supports this
requested rule. Under Section 104(d), when state law provides for a
different result for out-of-state state banks compared to national and
in-state state banks, that law is preempted. Given Section 104(d) and
the FDIC's authority to address compliance with law under FDI Act
Section 8, the FDIC can adopt a rule consistent with the logic and
policy of Riegle-Neal II that will provide state banks competitive
equality in every state so that no insured state bank will be required
to comply with a state law unless a national bank also would be subject
to that law.
    OCC rules have provided national banks substantial certainty and
clarity concerning the law governing national bank activities across
the country.\24\ These OCC actions have had the effect of making
national banks more competitive and efficient in interstate

[[Page 13424]]

banking and have reduced legal risk. These rules, as supplemented by
interpretations and guidance issued by the OCC, also have clarified the
scope of the OCC's compliance and enforcement responsibilities and
standards with respect to the safe and sound operation of national
banks. The FDIC has authority to provide a parallel result for state
banks in its rules.
---------------------------------------------------------------------------

    \24\ The Comptroller has addressed the reality of multistate
banking by adopting rules that provide that a national bank and its
operating subsidiaries operate solely under the National Bank Act
and OCC rules wherever they do business across the country. The OCC
rules expressly provide that the National Bank Act, not state law,
governs the deposit, lending, and other activities of national
banks, except as specifically provided in the OCC rules. See 12 CFR
7.4007-7.4009. The National Bank Act does not expressly address the
law applicable to a national bank outside states where it has
branches. Indeed, prior to the adoption of OCC rules addressing
these issues in recent years, a number of courts determined that
national banks were subject to state laws that did not conflict with
the provisions of the National Bank Act. E.g., National State Bank
v. Long, 630 F.2d 981 (3d Cir. 1980); Perdue v. Crocker National
Bank, 702 P.2d 503 (Cal. 1985); Best v. U.S. National Bank, 739 P.2d
554 (Or. 1987). Nevertheless, the courts including the U.S. Supreme
Court, have upheld OCC rules and determinations since 1944 that
flesh out the National Bank Act and spell out the ability of
national banks and their operating subsidiaries to apply the
National Bank Act wherever they do business. These OCC
determinations have generally received Chevron deference. E.g.,
NationsBank of N.C. v. VALIC, 513 U.S. 251 (1995), Barnett Bank of
Marion County v. Nelson, 517 U.S. 25, 33 (1996), Wachovia Bank, N.A.
v. Watters, 334 F. Supp. 2d, 957, 963-65 (W.D. Mich. 2004).
---------------------------------------------------------------------------

3. The FDIC Should Clarify That Home State Law Governs the Activities
of an Operating Subsidiary of a State Bank to the Same Extent as Home
State Law Applies to the Parent Bank

    In a 1996 rulemaking, which codified existing interpretations, and
in subsequent modifications, the OCC has adopted comprehensive rules
concerning the establishment and operation of operating subsidiaries.
See 12 CFR 5.34; 69 FR 64478 (Nov. 5, 2004). The OCC rules as amended
in 2001 further specify that state law applies to a national bank
operating subsidiary to the same extent state law would apply to the
national bank itself. See 12 CFR 7.4006. The FDIC should similarly make
clear that an operating subsidiary established by a state bank under
its home state law, like the operating subsidiary of a national bank,
will be governed by the same law as would its insured state bank
parent, except when a state law would apply to the activities of a
national bank operating subsidiary.
    The Roundtable recognizes that the authority of an insured state
bank to establish an operating subsidiary must arise under its charter
law. Whether a state bank can have an ``operating subsidiary'' will be
determined by appropriate home state authorities under the bank's
charter law. Nevertheless, the FDIC plainly has authority to determine
that a state bank operating subsidiary that is treated for all purposes
as if it were a division of the bank will be subject to the FDI Act and
FDIC rules in the same way as its insured bank parent, parallel to a
national bank operating subsidiary. The OCC rules concerning operating
subsidiaries were adopted without the existence of any express
provision in the National Bank Act.\25\
---------------------------------------------------------------------------

    \25\ When the authority for a national bank to establish a
financial subsidiary was authorized under the GLB Act in 1999, new
Section 24a in the National Bank Act implicitly confirmed the
existing OCC approach to establishing operating subsidiaries. See 66
FR 34784, 34788 (July 2, 2001).
---------------------------------------------------------------------------

    The FDIC has discretion under Section 9 and Section 24(f) to
determine by rule that a subsidiary that is an operating subsidiary
under home state law will be treated under the FDI Act as if it were a
division or branch of the state bank.\26\ This rule provision would
thus allow a state bank operating subsidiary to engage in interstate
banking activities in host states and other states on the same terms on
which its state bank parent operates.
---------------------------------------------------------------------------

    \26\ The FDIC has recognized in Advisory Letter 99-5 that a
state bank operating subsidiary may be treated the same as a state
bank branch if the operating subsidiary engages in activities that
would require a branch designation. Advisory Letter 99-5 recognizes
that because a bank established and controls its operating
subsidiary, the offices of an operating subsidiary are similarly
``established'' by the bank for branching purposes. This result is
also consistent with the terms of Section 1813(o) of the FDI Act, in
which a ``domestic branch'' is defined to include any ``additional
office'' of a bank. The FDIC thus has recognized the concept
underlying the ``operating subsidiary'' and thus can apply it more
uniformly to all state bank activities by rule.
---------------------------------------------------------------------------

4. The FDIC Should Adopt Rules Construing the Scope and Application of
Section 104(d) To Make Clear that State Laws, Rules, or Actions Are
Preempted Under Section 104(d) When They Provide for Disparate
Treatment Between an Out-of-State National Bank or In-State Bank and an
Out-of-State State Bank, or an Affiliate Thereof

    The Roundtable also requests that the FDIC provide greater clarity
and certainty to insured state banks with respect to the scope of the
federal preemption provided in Section 104(d) of the GLB Act. In view
of the complexity of Section 104(d) and the general lack of
understanding of its provisions, FDIC rules are needed. Moreover, a
rulemaking is a preferable means for providing needed clarity than
either litigation or an enforcement proceeding.
    Section 104(d) provides express federal preemption of certain state
laws that affect ``insured depository institutions'', as defined in the
FDI Act. Insured state banks subject to FDIC regulation are the
intended beneficiaries of the Section 104(d) preemption. Yet state
banks today are not utilizing this preemption, because the statute is
relatively new and complex and the relevant provisions have not been
construed by any agency or court. Given the complexity of the Section
104(d) provisions, FDIC guidance would provide much needed clarity and
certainty. Accordingly, we request the FDIC to exercise its authority
under FDI Act Sections 8 and 9 to adopt rules that specify the scope of
the express preemption provided under Section 104(d) for insured state
banks. Alternatively, the FDIC might adopt a statement of policy
addressing the scope and effect of Section 104(d) for state banks.
    The breadth of the Section 104(d) preemption and its purpose to
reach state law or actions that would provide disparate treatment for
any type of depository institution, including the distinct class of
out-of-state state banks, vis-[agrave]-vis its competitors are evident
in the language of the statute. Section 104(d)(4)(D) provides four
distinct nondiscrimination tests for any state law or action that
``restricts'' any depository institution or any affiliate.\27\ These
provisions of Section 104 were carefully drafted and the text
demonstrates that Congress made careful distinctions when determining
whether state discrimination between competitors should be
impermissible, and thus and preempted, under federal law.\28\ The
distinctions in the statutory

[[Page 13425]]

language permit the FDIC to address the meaning of Section 104(d) for a
state bank confronting state laws outside its home state that
disadvantage it by putting it in a different legal or competitive
position than its national bank or in-state state bank competitors.
---------------------------------------------------------------------------

    \27\ The pertinent portions of Section 104(d) are as follows:
    (d) Activities.
    (1) In general. Except as provided in paragraph (3), and except
with respect to insurance sales, solicitation, and cross marketing
activities, which shall be governed by paragraph (2), no State may,
by statute, regulation, order, interpretation, or other action,
prevent or restrict a depository institution or an affiliate thereof
from engaging directly or indirectly, either by itself or in
conjunction with an affiliate, or any other person, in any activity
authorized or permitted under this Act and the amendments made by
this Act. * * *
    (4) Financial activities other than insurance. No State statute,
regulation, order, interpretation, or other action shall be
preempted under paragraph (1) to the extent that--
    (A) It does not relate to, and is not issued and adopted, or
enacted for the purpose of regulating, directly or indirectly,
insurance sales, solicitations, or cross marketing activities
covered under paragraph (2);
    (B) It does not relate to, and is not issued and adopted, or
enacted for the purpose of regulating, directly or indirectly, the
business of insurance activities other than sales, solicitations, or
cross marketing activities, covered under paragraph (3);
    (C) It does not relate to securities investigations or
enforcement actions referred to in subsection (f); and
    (D) it--
    (i) Does not distinguish by its terms between depository
institutions, and affiliates thereof, engaged in the activity at
issue and other persons engaged in the same activity in a manner
that is in any way adverse with respect to the conduct of the
activity by any such depository institution or affiliate engaged in
the activity at issue;
    (ii) As interpreted or applied, does not have, and will not
have, an impact on depository institutions, or affiliates thereof,
engaged in the activity at issue, or any person who has an
association with any such depository institution or affiliate, that
is substantially more adverse than its impact on other persons
engaged in the same activity that are not depository institutions or
affiliates thereof, or persons who do not have an association with
any such depository institution or affiliate;
    (iii) Does not effectively prevent a depository institution or
affiliate thereof from engaging in activities authorized or
permitted by this Act or any other provision of Federal law; and
    (iv) Does not conflict with the intent of this Act generally to
permit affiliations that are authorized or permitted by Federal law.
15 U.S.C. 6701(d).
    \28\ Compare the ``other person'' language in subparagraphs (i)
and (ii). Subparagraph (i) addresses ``other persons engaged in the
same activity'', while Subparagraph (ii) addresses ``other persons
engaged in the same activity that are not depository institutions or
affiliates thereof.''
---------------------------------------------------------------------------

    The following specific items might be covered in an FDIC rule or
statement of policy:
     The rule should state that the Section 104(d) preemption
applies to insured banks, and to their subsidiaries, affiliates and
associated persons.
     The rule should define a ``person'' to include a
depository institution, subsidiary, affiliate, and associated person.
     The rule should state that in view of the breadth of the
nondiscrimination requirements stated in Section 104(d) the word
``restrict'' in Section 104(d)(1) is to be read broadly to include any
state law, rule, interpretation or action that calls for any limitation
or requirement. Any state law that ``restricts'' but is
nondiscriminatory under Section 104(d)(4) is not preempted under
Section 104(d). By the same token, any state law that ``restricts'' and
is discriminatory under Section 104(d)(4) is preempted under Section
104(d).
     The rule should address each of the four nondiscrimination
provisions in Section 104(d)(4) to confirm that each is a distinct test
and that any state law or action that fails any one test is preempted.
     The rule should address the scope of ``actions'' in
Section 104(d)(4) to include all types of formal or informal
administrative actions by any state or local governmental entity,
including decisions with respect to civil enforcement of state rules.
     The rule should address Section 104(d)(4)(D)(i) in light
of the terms used in subparagraph (ii) to specify that subparagraph (i)
addresses treatment under state law of an out-of-state insured state
bank, which is plainly an ``insured depository institution,'' that is
different from the treatment of any national bank or in-state state
bank and banks, which is an ``other person engaged in the same
activity'' under these provisions. It should also specify that this
discrimination can take various forms, including state laws, rules, or
``actions'' that treat out-of-state state banks or their subsidiaries
differently from in-state or federal institutions, whether expressly
(e.g., through a state law exemption for federal institutions, but not
out-of-state state banks insured institutions), by operation of law
(e.g., when state law is preempted for national banks or federal
thrifts, and federal credit unions, but not for out-of-state state
banks), or by an administrative determination to enforce a state rule
against an out-of-state state bank or affiliate, but not against a
federal entity. The rule could give examples.
     The rule should define ``state law'' to include laws,
ordinances, rules, etc. of political subdivisions (including any
county, municipality, etc.).

5. The FDIC Should Implement Section 27 of the FDI Act by Adopting a
Rule Parallel to the Rules Promulgated by the OCC and OTS

    The scope and implementation of the express preemption for the
``interest rate'' charged in interstate lending transactions by state
and national banks under Section 27 of the FDI Act and Section 85 of
the National Bank Act have been authoritatively addressed by the courts
\29\ and in agency interpretations.\30\ Nevertheless, both the OCC and
OTS have adopted rules codifying the scope of the respective statutory
provisions. We request that the FDIC adopt parallel provisions by rule
so that state banks will operate in a matching legal framework under
these parallel statutes.
---------------------------------------------------------------------------

    \29\ Greenwood Trust Co. v. Mass., 971 F.2d 818 (1st Cir. 1992),
Smiley v. Citibank, 517 U.S. 735 (1996).
    \30\ See FDIC General Counsel Opinions 10 and 11.
---------------------------------------------------------------------------

* * * * *
    The Roundtable appreciates the FDIC's consideration of this
petition. We recognize that it is very broad and asks the FDIC to
undertake a major rulemaking. We believe that such an effort is
urgently needed to preserve a strong dual banking system, to maintain
safety and soundness, and to ensure that it is attractive to both large
and small banks. Such a system is an integral, essential part of the
framework for banking in the United States. While we strongly support
the development of interstate banking and federal preemption over the
last decade, we believe that the modernization of American banking
requires a parallel modernization of the state half of the dual banking
system. Since the issues concern interstate business and preemption,
the needed actions must come at the federal level. As discussed above,
we believe that Congress has given the FDIC both the tools and
responsibility to address these needs.
    The Roundtable and its members stand ready to work with the FDIC
and its staff to achieve these important objectives. If you have any
further questions or comments, please do not hesitate to contact me or
John Beccia at (202) 289-4322.

     Sincerely,

Richard M. Whiting,
Executive Director and General Counsel.

cc: Chairman Donald E. Powell, William F. Kroener III, Esq.

[FR Doc. 05-5499 Filed 3-18-05; 8:45]
BILLING CODE 6714-01-P

 

Last Updated 03/21/2005 regs@FDIC.gov