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Public Hearing on Preemption Petition

Addendum 1 to Comments of Carl E. Jones, Jr.
Responses to Questions posed by the FDIC in its Notice of Public Hearing

G-1. Is a preemptive rule in these areas necessary to preserve the dual banking system?
Yes. While we disagree with the characterization that the proposed rule is preemptive in nature, Congress has clearly set forth a policy where the dual banking system is to be preserved and that state chartered banks are to operate in parity with national banks.

However, we believe the primary dynamic of the proposed rule will be guidance to the respective states, where state chartered banks will have the ability to export home state law to each host state where it offers products and services and have the home state law recognized more uniformly throughout its marketplace. Pre-emption occurs only to the extent that host states attempt to treat national banks and their state chartered banks in a non-competitive manner relative to out-of-state State chartered banks.

G-2. What would be the impact on consumers if a preemptive rule were issued in these areas?
Consumers will be the primary beneficiary of the proposed rule. Without competition, consumers lack choice in the financial products and services they may choose. The proposed rule will allow a consumer to walk into any branch of any bank operating near their home and be indifferent as to whether the branch is affiliated with a national bank or a state chartered bank, because the range of products and services will be similar and competitively priced. Without the preservation of the dual banking system, and if the evolution of the interstate market proceeds to having all "large" banks operating as national banks and all "community" banks operating within only their home state, consumer choice will be severally and unnecessarily limited.

G-3. What are the implications of rulemaking in these areas for state banking regulation?
The vast majority of states do not have major state banks that have chosen to operate on an interstate basis, so their regulation of their home state banks will remain as is. As branches of interstate banks move into those states, some pressure may occur to adjust state law to afford those home state banks the opportunity to competitive, however whether and how to accomplish this change can be controlled at the state level and the role of the states in setting banking policy can be more easily examined and adjusted.

We have seen a dramatic effect in Alabama as banks have become national banks either by acquisition or conversion. The cost of operating state banking departments is subsidized in larger measure by the bigger banks, and these costs are being shifted to the remaining state banks. If this trend continues, state legislatures may have to intervene and appropriate more of their limited tax revenues to support bank examinations of the remaining state chartered banks.

G-4. Would the measures urged by Petitioner achieve competitive balance between federally-chartered and state-chartered financial institutions as advocated by the Petitioner?
Parity does not necessarily require equality. Competitive balance is achieved by giving state chartered financial institutions a choice of laws under which to operate - a real choice not driven by the dramatic limitations of one regulatory regime over another- and then having that choice of law uniformly applied in the various states. The proposed rule accomplishes competitive balance to the maximum extent under current law.

G-5. Are there alternative mechanisms available that would achieve the policy goals advocated by the Petitioner?
No. State chartered banks need a federal resource to apply standards of federal law to our operations in the several states and the Corporation is the only institution we are aware of to accomplish this objective.

G-6. Should the issue of competitive parity in interstate operations be left to Congress?
Congress has resolved the issue of competitive parity in favor of the objectives outlined in the Roundtable's petition. The petition reflects Congressional policy to preserve the dual banking system by maintaining a sense of balance between federally charter and state chartered banks. Had Congress meant to direct a change in the historic application of the dual banking system to a system of two separate and unequal regulatory regimes, it would have left the original language of Riegle-Neal I unchanged.

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?
No. It is the correct legal conclusion that the FDIC has authority to act and should act. It is also a correct view of Congressional policy that it is in the national interest to preserve the dual banking system, and the proposed rule is the correct first step in making that policy a reality.

G-8. What would be the negative impact, if any, of the FDIC adopting a preemptive regulation as suggested by the Petitioner?
Regions perceives the only negative impact would result from not adopting comprehensive regulations that maintains parity in the dual banking system.

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?
Yes, and Congress has addressed that issue. Banks which chose to operate under a state charter within a home state are governed by home state law and the policies that are reflected in that law. Congress has enacted a set of laws structuring the interstate banking market such that national banks operating under a federal chartered do so under federal law applied uniformly throughout their service territory, and state chartered banks will be subject to host state law to the same extent as national banks.

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?
As stated in our testimony, we take issue that the paramount outcome of this proposed rule will be the preemption of state law. The petition asks the FDIC to address the extent to which existing federal statutes determine which state laws outside a bank's home state apply to the bank's interstate activities. The benefit to state banks is clarity of law in creating products and services and uniformity in how those products and services may be applied throughout the bank's geographic footprint.

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?
Regions remains supportive of the legal and policy arguments outlined in the Roundtable's petition and reiterates the clear policy directives adopted by Congress in amending the Riegle-Neal statute in 1997.

G.-12. Is there a need for clarification on what law applies to the interstate operations of state banks?
Absolutely. A good starting point is to rename this proceeding and any subsequent rulemaking as a "Petition to Clarify Certain State Laws" rather than focus on preemption. That dynamic alone signifies why action by the FDIC is required to modernize and make uniform the regime of state chartered banks operating in interstate commerce.

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?
Regions remains supportive of the legal and policy arguments outlined in the Roundtable's Petition and reiterates the clear policy directives adopted by Congress in amending the Riegle-Neal statute in 1997.

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?
The home state regulator would make the first call as to whether home state law speaks to the matter at hand, and if not, then it would be incumbent on the home state regulator to follow OCC determinations or seek OCC or FDIC guidance. It is likely that these determinations would be reflected in agreements, both formal and informal, between state regulators as they are today. The role of the FIDC would be that of a national arbiter to resolve discrepancies between the varying interests.

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?
State law is not being altered by this petition. Home state law and the regulations, determinations and other permissible actions of the home state regulator would govern activities by the state chartered banks. As home state regulators routinely work in conjunction with the FDIC and the FRB, federal input in addressing issues is always available and regularly utilized. The FDIC of course retains authority to adopt general federal rules and guidances addressing practices of state banks and to condition merger or other approvals with respect to CRA or community convenience and needs.

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?
Regions reiterates its support for the legal and policy arguments presented in the Roundtable's position as the most appropriate explanation of this issue.

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?
Parity between state-chartered and national banks requires that state banks have the same flexibility to establish and operate through operating subsidiaries. The limitations placed on Regions Bank by our state regulator apply to our subsidiaries. Without parity, the dual banking system as we have known it will not survive. Further, without applying the principal of parity to the full scope of how modern banks are structured to operate in interstate commerce, not allowing this principal to apply to OpSubs of state chartered banks renders Congress's intention as meaningless.

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?
Regions reiterates the legal and policy arguments presented in the Roundtable's position as the best explanation for the treatment of OpSubs.

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?
Regions supports the answer to this question offered by outside counsel to the Roundtable in its testimony.

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?
Regions reiterates the legal and policy arguments presented in the Roundtable's petition as the most appropriate response to this questions.

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?
Regions reiterates the legal and policy arguments presented in the Roundtable's petition and further adopts by reference the arguments present by Counsel for the state coordinating group in its testimony.

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?
Regions reiterates its support for the legal and policy arguments presented in the Roundtable's position as the most appropriate explanation of this issue.

4-4. Is it reasonable for the FDIC to read section 104 as having some application to interstate banking operations in general?
Yes. And appropriate.

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?
Regions reiterates its support for the legal and policy arguments presented in the Roundtable's position as the most appropriate explanation of this issue.

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?
Regions reiterates the legal and policy arguments presented in the Roundtable's petition and further adopts by reference the arguments present by Counsel for the state coordinating group in its testimony.

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?
Regions reiterates its support for the legal and policy arguments presented in the Roundtable's position as the most appropriate explanation of this 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?
The requested rule should have no effect.




Last Updated 05/24/2005 communications@fdic.gov

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