Thanks to the FDIC for conducting this public hearing to have a public discussion on this important subject to the future of banking in this country. This testimony is supportive of the Petition request for rulemaking. Even though the FDIC rulemaking would preempt state law, our concerns are focused on maintaining the viability and competitiveness of the state charter, especially in an interstate banking environment.
Our general observations on the current banking environment are:
The dual banking system is out of balance because of the broad OCC rulemaking of February 2004 preempting most state laws as they relate to the activities of national banks and their subsidiaries.
FDI Act and the FDIC have authority over the activities of state chartered banks and their subsidiaries (Sections 24, 27, & 46).
This is an interstate banking issue. The FDI Act has been modified to address interstate banking issues for state chartered banks.
Banking is actively conducted on an interstate basis with the business model constantly changing.
Most banks do not want the OCC Preemption rolled back but want the state charter to have parity with the federal charter. In other words, they want the dual banking system rebalanced.
Interstate banking should be charter neutral to bring the maximum benefit to the economy.
Our response to FDIC general questions related to the petition:
An FDIC preemptive rulemaking would re-establish order to preserve the functioning dynamic dual banking system by allowing state banks and their subsidiaries the opportunity to compete on par with the activities of their federal counterparts in meeting the banking needs of this country.
Consumers would continue to be protected by home state law and federal law in areas where host state law had been properly preempted.
State banking organizations could operate under a uniform set of laws to conduct their activities with more safety and soundness focus on those activities, regardless of the bank's chosen structure.
Congress obviously has the authority to pass additional law to re-establish parity in the dual banking system, but arguably, Congress has already empowered FDIC through the FDI Act to respond to this imbalance.
Positive action through rulemaking does not undermine the States who have taken legal action to enforce their state laws. This action levels the interstate banking playing field until the courts can hear and decide on the merits of the OCC rulemaking that preempted state laws.
The interstate banking system operates today across this country. Clarity of law promotes the safety and soundness of banks and the certainty of operations affecting the bank, its structure, activities, and customers.
Our response to the petition's specific requests:
FDIC has clear authority to make rules on (1) parity for interest rate exportation and (2) equality for state and national banks in the activities conducted in other states. Rulemaking clarifies and answers questions and helps avoid costly misunderstandings.
FDIC through Sections 24 and 46 of FDI Act has responsibility for the scope of activities of a state bank and its subsidiaries. The FDIC is primarily responsible for the safety and soundness of the entire banking system as a result of the deposit insurance fund. Parity for the activities of banks and their subsidiaries is a natural extension for the FDIC in its overview of providing safety and soundness to the US Banking system. No insured bank should be left behind in its ability to safely and soundly compete.
FDIC has a major role in protecting the dual banking system for state chartered banks:
State bank and bank subsidiary activities are now limited by federal law codified in the FDI Act requiring FDIC permission to conduct activities beyond those of a national bank or its subsidiary (FDI Act Sections 24 and 46). Those federal laws establish a natural bias by Congress allowing the OCC to approve new activities without FDIC permission.
OCC has taken a proactive role in their mission to provide a system of activities for national banks and their subsidiaries which they believe are safe and sound. FDIC has to look at their mission and decide if they are going to be proactive with the same safety and soundness issues for state-chartered banks and their subsidiaries to cure an imbalance in the system because of federal preemption.
The dual banking system provides choice. This choice has to provide a viable state charter alternative fully competitive in an interstate banking market. If the state charter is disadvantaged because of a federal law change or interpretation, FDIC has the federal authority to correct this disadvantage and thereby enhance the safety and soundness of the full banking system.
Our belief is that the intent of federal law (FDIC Improvement Act of 1991, Riegle Neal Act of 1994, Riegle Neal Amendment of 1997, the Gramm Leach Bliley Act of 1999) is to maintain the competitive balance between the state and national charter. The petition is asking the FDIC to exercise its authority to do just that.
A dual chartering system that prevents an interstate bank from choosing a state charter due to competitive inequality does not serve the interests of the banking industry or its customers and imposes additional safety and soundness risks to the banking system.