Good morning. My name is Chuck Muckenfuss. I am here today on behalf of a working group (the "Working Group") of state-chartered commercial banks that are members of The Financial Services Roundtable (the "Roundtable"). Each is among the largest remaining state-chartered banks. Each is grateful to the FDIC for responding to the petition of the Roundtable (the "Petition") seeking parity for state banks in the ability to operate across state lines under a consistent framework of law, regulation and supervision. At stake is the continued vitality of state bank regulation and the structure and dynamics of bank regulation at the federal level that have served our nation so well.
In a world in which few of us are wise enough and lucky enough to get it right all or even most of the time, the evolution and implementation of public policy are best served by more than one locus of authority and accountability. The public good, like private good, is ill served by monopoly. Diversity works. That is the important insight of federalism and it is the peculiar genius of bank regulation in the United States.
The Roundtable's Petition and the Working Group's testimony reflect the danger to this engine of reform and innovation. Without a comprehensive framework of parity in the ability of state banks to operate interstate under a single uniform framework of law, regulation and supervision, the only viable choice for interstate banks, like those in the Working Group, will be a national charter. That, in short, spells the death of the dual banking system.
Before responding to each of the questions set forth in the notice of hearing, several key points are worthy of special note.
First of all, it is important to be clear about what is and is not requested in the Petition. The Petition is not requesting a comprehensive federal preemption of state law in the ordinary sense. Rather, it seeks to fully implement an existing federal statutory framework for determining which state law applies when state banks operate across state lines. By providing clarity and certainty, the rules contemplated by the Petition would assure that state banks have parity with national banks in their ability to function under a consistent framework of law, regulation and supervision in their interstate operations.
Second, the principle of parity as a mechanism of maintaining balance in the dual banking system and actions requested by the Petition are neither radical nor path breaking. Congress chose this approach in enacting the McFadden Act, Section 27 of the FDI Act and, finally, the 1997 amendments to the Riegle-Neal Act ("Riegle-Neal II").
Third, the FDIC has ample authority to take all of the actions urged in the Petition. Sections 8 and 9 of the FDI Act and well-settled principles of administrative law fully support the power of the FDIC to implement Riegle-Neal II and Section 104 of the Gramm-Leach-Bliley Act ("Section 104") in a manner that will provide parity to state banks as they conduct business across state lines. The Petition asks the FDIC to perform exactly the function contemplated for administrative agencies in our system of government. The success of the OCC and the OTS in addressing the need for a seamless scheme of supervision and regulation of interstate banking is illustrative.
Fourth, it is important to underscore that the stakes are far greater than the role of the states in the dual banking system. The direct roles of the Federal Reserve and the FDIC in the regulation of banks are derivative of the federal system of state and national charters. Diversity and choice at the federal level, along with a uniquely successful experience of state-federal cooperation, will be lost if interstate banks – multinational, regional or community – must opt for a national charter.
Fifth, the task that we are asking you to undertake is as difficult as it is important. Neither the Petition nor this testimony answer all the questions and concerns that must be addressed, including at least three related challenges:
A parity framework must address the possibility that there might be some sort of a "race to the bottom." We believe that the FDIC has several alternatives to assure that this does not occur.
A parity framework must provide appropriate resources to assure effective supervision and regulation of state banks and effective and vigorous protection of all customers no matter where they reside. The Working Group believes that these resources are and will be available – as they have been for more than 30 years – through partnership between the respective states and the Federal Reserve or the FDIC and through cooperative agreements between and among the states.
A parity framework – like a regime of federal preemption – must not be, or be perceived as, a device to avoid appropriate and necessary regulation. The framework sought by the Working Group must not, for example, be a mechanism to avoid the eradication of predatory practices.
In short, the Working Group fully recognizes and appreciates these concerns and others expressed in today's hearing. We are fully committed to working with the FDIC in the process of creating a framework that preserves the dual banking system and fully protects the public interest.
Finally, time is of the essence. The clear statements of the members of Congress closest to this issue in 1997 were eerily, and profoundly, prophetic. We are now experiencing exactly the dynamic that Riegle-Neal II sought to prevent. This Working Group can testify directly that, absent the clarity and certainty of an implementing rule for state banks operating interstate, we are in the endgame and the result is clear-cut – a single dominant framework of regulation of interstate banks. Action is required now.
The FDIC Board must carefully consider the undeniable fact that inaction constitutes a choice to ratify the end of the unique American federal system of bank regulation as we have known it for 140 years. It is not the time to sit on the sidelines. The direction from Congress to preserve the dual banking system was clear. Yet the goals of its actions remain unfulfilled. Accordingly, the Working Group challenges those who have not been supportive of the Roundtable's request for an FDIC rulemaking to engage in this discussion in a thoughtful, constructive and positive manner. In our judgment, the failure to do so will have long-term adverse systemic consequences and impose unnecessary costs and burdens on state and national banks, as well as the customers they serve.