The subject of today’s hearing is an important—and complex—one. The future health and viability of our nation’s dual banking system is critical to the continued vibrancy and diversity of the banking industry. In turn, a vibrant, diverse banking industry strengthens the overall health of our nation’s economy and enables the provision of efficient and responsive financial services to our nation’s consumers and businesses.
ICBA is a strong proponent of the dual banking system, and of a strong and robust state banking system. However, we are becoming increasingly concerned that the balance between the federal and state systems is being tilted too far in one direction as assets in the industry become more and more concentrated in the national charter.
The balance in the dual banking system needs to be restored. However, ICBA has not determined whether the recommendations in the Financial Services Roundtable’s petition are the appropriate solutions, and we question whether this forum, as opposed to the Congress, is the appropriate one. Accordingly, we neither support nor oppose the recommendations of the petition at this time.
Overall, the petition highlights the complexities surrounding the issue of what laws—state, national or both—should be applicable to a national bank or a state-chartered bank conducting activities in more than one state. As the banking industry continues to evolve, the marketplace changes, industry concentration increases and nationwide or region-wide operations become more and more dominant, these questions are becoming even more difficult. The petition highlights the challenges in crafting rules that will promote the dual banking system and recognize our nation’s tradition of federalism—where the states retain certain powers—in the face of these changes.
The ICBA understands the impetus for the OCC’s February 2004 preemption rule, the desire to bring clarity to the preemption issue and provide national banks with a level of certainty in conducting their operations.
However, in ICBA’s view, it would have been preferable for the OCC to continue to analyze how individual state laws impact national banks and to make preemption determinations on a case-by-case basis, rather than adopt a broad general preemption regulation. Overall, ICBA has been and remains concerned that the scope of the OCC rule may not maintain the creative balance that characterizes our unique dual banking system.
In light of the OCC’s preemption rulings, Financial Services Roundtable’s petition requests the FDIC to undertake a rulemaking designed to provide parity between state and national banks in interstate banking, restore equilibrium to preserve the dynamic vitality of the dual banking system, and avoid having all banks that operate on an interstate basis choose the national charter.
ICBA understands the attraction the petition may have for multi-state state chartered banks. Allowing them greater ability to operate under a single state law (home state law) would provide uniformity similar to that enjoyed by national banks, fostering greater efficiency and certainty in their operations, and alleviating some of the pressure to migrate to the national charter.
Ensuring that larger multi-state state-chartered banks can retain their state charters may be critical to preservation of the dual banking system. If large state-chartered banks convert to national charters, would the state system have enough assets to sustain itself? ICBA has grave concerns about whether a state system comprised only of community banks would be viable over the long term.
The petition seeks to expand on the concepts of the Riegle-Neal Interstate Banking and Branching Efficiency Act and “fill in the gaps” where the law does not provide for host state law preemption. ICBA questions whether the petition goes too far, and whether a regulatory forum is the right one to determine these questions, or whether they should be determined in the legislative arena after full public debate.
ICBA is also concerned about a “race to the bottom” in state supervision and regulation that could be engendered as states clamor to maintain or gain assets under supervision. Laws and regulations that home states adopt will have extraterritorial impact on businesses and consumers in host states. We see the danger of a few states becoming the chartering states of choice for multi-state state-chartered banks, and the potential creation of “winner” states and “loser” states.
ICBA also has concerns about the competitive inequities and balance between banks that must adhere to state law and those that do not. Single-state, state-chartered banks would not directly benefit from the rules sought and will be the only institutions operating in their state that are subject to state law. Perhaps this situation is not too different from where we stand today with preemption for national banks and Riegle-Neal preemption for out-of-state banks. Single-state state-chartered banks discontented with this result can always convert to a national charter—which puts us back where we started, with the dual banking system out of balance and further centralization of bank regulation and supervision.
The challenge of maintaining a competitive balance in the dual banking system is a constant one, made more difficult in recent years with the growth, and concentration of industry assets in, institutions of national and regional scope. But what is the end game of the current path being sought? If preemption is always the solution, are we inexorably marching toward a national banking system only, or a system where all applicable law is federal law and there is no room for state law?
The overarching question that underlies the preemption debate and the Roundtable’s petition: what law should be applicable to national and state bank activities? ICBA believes we must widen the debate and dialogue on these issues to find solutions that serve consumers and businesses well, preserve balance in the dual banking system, and promote the health and vitality of the banking sector and the nation’s economy.