One of the great strengths of the American economy — unlike much of the rest of the world — is its big single marketplace. By avoiding the waste and inefficiency of a balkanized regulatory system, we have prospered. At the same time, our federalist framework has allowed states to charter local banks subject to local law. This balance between a unified national system and state-level flexibility has served us well for more than 150 years.
The cornerstone of that balance is
This principle has been challenged repeatedly. The issue has been the subject of frequent litigation and has been brought before the U.S. Supreme Court on multiple occasions since the Civil War. In these key cases, the Comptroller of the Currency has essentially always prevailed, upholding the authority of the national banking system. In Barnett Bank v. Nelson (1996), the court upheld national banks' authority to sell insurance despite a state prohibition. In Watters v. Wachovia Bank (2007), the court confirmed that national bank operating subsidiaries were protected by preemption. Most recently, in Cantero v. Bank of America (2024), the court reaffirmed preemption unanimously. The principle is not in doubt. Yet state legislatures and interest groups continue to throw sand in the gears.
Last year, John Dugan and I wrote about how Illinois' attempt to regulate interchange fees represented
In Texas, the state won't do business with any bank that "boycotts" fossil fuel or firearms companies. West Virginia has taken a similar stance in defense of coal. Meanwhile, California has moved in the opposite direction, encouraging investment in renewable energy and electric vehicles while discouraging oil and gas. Florida has restricted the use of environmental, social and governance considerations in banking.
For banks operating across state lines, the result is whiplash. These conflicting rules force compliance officers into a political tug-of-war instead of letting bankers make decisions based on sound risk management. No business model can remain consistent — or sustainable — under such conditions.
The Office of the Comptroller of the Currency's recent bulletin warning banks that past debanking actions could affect supervisory reviews is the latest effort to put the president's executive order on debanking into action. But industry sources say the order itself forces banks to choose between pleasing their regulators and taking on unwanted risk.
The consequences are not limited to traditional banks. Fintechs and other nonbank firms that have been granted national charters can operate with fewer state-level restrictions. If banks must navigate a patchwork of contradictory mandates while nonbanks are exempt, the result is a tilted playing field. Fair competition depends on clear, uniform rules. Without preemption, the entities least equipped to uphold safety, soundness and consumer protection gain the upper hand.
Accordingly, the American Bankers Association and other banking organizations have urged the OCC to establish clear national standards for providing banking services, including rules that would prevent politically motivated "debanking" at the state level. This effort is both sensible and necessary. Finance should be about economics, not politics. A loan should be approved if it makes sense from a risk perspective and declined if it does not. That determination should not depend on whether the statehouse is red or blue.
The OCC has the opportunity — and the responsibility — to act. By setting national standards that preempt conflicting state mandates and curb debanking efforts, the agency can safeguard the integrity of our financial system, reduce wasteful litigation, and restore clarity to banks and consumers alike.
Lincoln understood that a strong, stable national banking system was essential to America's prosperity. More than a century and a half later, the lesson remains the same: Preemption is not a partisan convenience but a structural necessity. Every bank — state or nationally chartered — should support the OCC and the ABA in defending it. The integrity of our national marketplace, and the economic well-being of the communities it serves, depends on it.
