- Key insight: The OCC's efforts to favor the national charter and preempt legitimate state laws designed to protect consumers is eroding the health and stability of the dual banking system.
- What's at stake: National trust charters avoid many of the safety and soundness requirements that apply to banks, such as deposit insurance, robust capital, or holding company oversight.
- Supporting data: Over the last year-and-a-half, there has been a dramatic increase in national charter applications, including de novos (12), trust charters (26), and conversions (22).
Policymakers at the federal and state level should be worried about the health and stability of
Despite these
The facts suggest otherwise:
In February, the OCC issued new chartering rules dramatically expanding the authorized activities of national trust charters.
The OCC has fought relentlessly to strip states of their lawful authority to protect consumers — watering down the high bar for preemption enshrined in the National Bank Act, or NBA, and recently affirmed by the Supreme Court.
And, over the last year-and-a-half, there has been a dramatic increase in national charter applications, including de novos (12), trust charters (26), and conversions (22).
If the national charter is at risk, someone should quickly tell these applicants.
Interstate banking is not the exclusive privilege of national banks. Congress intended that national and state-chartered institutions enjoy relative parity in interstate markets, and laws such as DIDMCA and Riegle-Neal help ensure that state-chartered institutions can effectively compete against their national counterparts.
The OCC's recent unlawful policies, if left unchecked, will undermine the dual banking framework that delivers national economic strength, provides certainty and choice for the financial services industry, supports innovation, and offers consumers access to responsible and competitive financial products.
The OCC's expansive national trust charter rules illustrate the problem, upending the mandated federal/state balance. Although Congress only authorized national trust charters to engage in fiduciary and related activities, the OCC now suggests they may engage in lending, payments, and potentially deposit-taking. These national trust charters avoid many of the safety and soundness requirements that apply to banks, such as deposit insurance, robust capital, or holding company oversight. This favoritism tilts the playing field and raises serious financial stability and consumer protection concerns.
The OCC's goal of supporting innovation cannot justify these expansive and unlawful chartering efforts. The national bank chartering framework should consider new business models, new technologies, new products and services, and new delivery methods. But, banks should be chartered, regulated and supervised as banks. Trusts should be chartered, regulated and supervised as trusts. The OCC's opaque and ambiguous framework puts a finger on the competitive scale for these national trust charters to the detriment of traditional banks — both state-chartered and national.
Swiss banking giant UBS Group received federal approval from the Office of the Comptroller of the Currency to convert its $1.6 trillion-asset UBS Bank USA from a Utah-chartered industrial bank to a national charter.
Underlying both the OCC's chartering policies and its approach to preemption is a growing narrative in Washington that a single federal standard is inherently superior to the diversity and flexibility offered by the dual banking system. While uniformity can be appropriate and beneficial in certain circumstances, it should remain the exception rather than the rule. Maintaining meaningful parity between state and federal charters supports a competitive, innovative, and responsible financial system by preserving multiple supervisory approaches and preventing excessive concentration of regulatory authority.
In the years leading up to the 2008 financial crisis, the OCC asserted federal preemption authority to block state efforts to address predatory mortgage lending and other emerging risks. The states repeatedly raised concerns about practices developing in the mortgage market. Too often, those concerns were dismissed by the OCC in the name of uniformity and federal exclusivity. The result was not better market efficiency — it was a crisis that harmed consumers, community banks and public confidence in banking.
Congress responded to the OCC's overreach by recalibrating federal preemption. The Dodd-Frank Act codified the
To be fair, some state laws go too far. State laws imposing restrictions on interchange fees are a good example of laws that present serious operational and compliance challenges for both national and state-chartered banks. Laws like these deserve a close examination by the courts. But the "inefficient, inflexible, unusual" preemption standard consistently proposed by the OCC lowers the bar for preemption so much that almost any state law would be struck down.
To be consistent and create legal certainty, the OCC must apply the preemption standard enshrined in the NBA. The ability of states to set appropriate consumer protection expectations is explicitly protected by Congress. It is not an assault on the national charter.
From the OCC's chartering authority to its most recent declarations on preemption, the debate today is not between a national banking system and regulatory chaos. It is about where to draw the line between legitimate federal and state interests within a dual banking system that has served the nation well for more than 160 years.
The genius of the American banking system has never been the triumph of one charter over another. It has been the ability of national and state-chartered banks to coexist, compete, and serve businesses and consumers in a framework that balances interstate markets with local accountability.
Preserving that balance is not an attack on the national charter, it is an essential safeguard for the dual banking system.
