WASHINGTON — A vote at the Federal Deposit Insurance Corp. meeting today presents a rare cliff-hanger as Chairman Don Powell tries to push forward a proposal granting state-chartered banks some of the exemptions from state consumer laws that national banks have.
Mr. Powell has tried before, only to be rejected 4 to 1. But recent changes to the board’s makeup and a slightly different approach could sway votes to his side.
Observers were split on whether he will succeed.
“It has less of a chance of passing than we do of seeing snow in D.C. in August,” said Jaret Seiberg, an analyst with Stanford Washington Research Group. “Chairman Powell has publicly said that he expects only one vote for the proposal, and he expects that vote to be from him — and all the other board members to vote against the proposal.”
But Neil Milner, the president of the Conference of State Bank Supervisors, disagreed. “I don’t know that he will lose,” Mr. Milner said. “He had strong support when the rule was drafted.”
To win, Mr. Powell needs the support of at least two more board members. He faces an uphill battle to win their support, some observers said.
Office of Thrift Supervision Director John Reich and Thomas Curry, an independent FDIC board member, voted against a state preemption plan at the last board meeting, in July. And the two new board members — Comptroller of the Currency John Dugan and FDIC Vice Chairman Marty Gruenberg — are considered skeptics of the plan.
The issue got its start in December, when the Financial Services Roundtable asked the FDIC to assert that host-state laws do not apply to state-chartered banks’ out-of state branches, operating subsidiaries, and loan offices.
Mr. Powell proposed at the July 19 meeting to release an advance notice of proposed rulemaking that would explore different ways the FDIC could grant the request.
But Julie Williams, then the acting comptroller, said the FDIC lacks legal authority to issue a proposal on the issue, and fellow board members expressed concern that she was right. They voted 4 to 1 to table the plan.
Mr. Powell then directed the FDIC staff to write a narrower proposal, which is expected to say that host-state laws do not apply to out-of-state branches of state-chartered banks but do apply to operating subsidiaries and loan offices. Experts said federal law gives the FDIC clear authority over state bank branches — not their operating subsidiaries and loan offices.
At the time, Mr. Reich (who was then FDIC vice chairman) and Mr. Curry said they might support this approach if the FDIC staff could show the legal authority for it
Since that time Mr. Powell has continued to press his case. In a Sept. 26 speech at the American Bankers Association’s annual convention, he said a regulatory fix is badly needed because a lack of parity between state and national bank charters poses a serious threat to the dual banking system.
“Until recently the relative share of state-chartered-bank assets remained fairly stable, at about 40% of commercial bank assets,” Mr. Powell said. “That share has dropped to just 30% at the end of March.”
He said he was unsure if he had the support of the board to move forward, however. Supporters of the plan say it is necessary because the OCC released a January 2004 rule clarifying that national banks do not have to comply with state consumer protection laws. Since then, supporters argue, national banks have had a competitive advantage.
“Action at the federal level is the only real hope of preserving the dual banking system that we have known in the past,” Mr. Powell said in the speech.
It is highly unusual for an agency head to call for a vote on an issue when unsure where the votes are, observers said.
Mr. Milner said Mr. Powell “feels something needs to be done, so he’s trying to do something.”
If “he’s unsuccessful, he might send a message to Congress” that they need to take up the issue, he said.
But Bert Ely, a banking policy consultant in Alexandria, Va., questioned whether an unsuccessful proposal would have much effect.
“I understand the argument that you win by losing, but I’m skeptical of how much weight that’s going to carry in the congressional debate over preemption,” Mr. Ely said.
Still, some said Mr. Powell might prevail and at least put out the plan for comment. It is just too close to call, observers said.
“It could be 4 to 1, or it could be 1 to 4, or they could decide to table it and continue to have a discussion about the dual banking system,” said Chuck Muckenfuss, a partner at Gibson, Dunn & Crutcher LLP who represents the Financial Services Roundtable.
