The Office of the Comptroller of the Currency will continue to defend preemption of federal law over state banking laws “as it is central to the dual banking system and cuts to the core of why we exist and who we are,” Acting Comptroller of the Currency Michael Hsu said today.
During a speech at the Exchequer Club in Washington, D.C., Hsu cited “a worrisome trend of fragmentation” in the national banking system with the recent introduction of several new and proposed state and local laws aimed at banks. While he didn’t point to any specific laws, Hsu said such efforts reflect growing political polarization in the U.S. “To varying degrees, the culture wars, identity politics and weaponization of finance are pushing toward greater and greater fragmentation of the U.S. financial system,” he said. “Increasingly banks are being asked by states to pick a side in service of performative politics rather than deliberative policy.”
Hsu said that a national banking system was first established to help unify the fragmented banking system that previously existed in the U.S., and that the OCC can “help ensure that parochial overreach today does not splinter our banking system.” However, the agency faces two critical tasks, he added.
First, the OCC must “fortify and vigorously defend core preemption,” and it must develop “more nuanced analysis” when applying the legal standard for determining preemption—an issue raised by the U.S. Supreme Court in Barnett Bank v. Nelson. Second, OCC officials are reviewing the agency’s 2020 interpretation of preemption under the Dodd-Frank Act to determine whether updates are needed in light of the Supreme Court’s recent Cantero v. Bank of America decision, in which the justices ruled that a lower court failed to properly analyze whether a New York state law was preempted in a manner consistent with the federal law.
“The combination of vigorously defending core preemption, while being more precise in defining and applying the Barnett standard, will sharpen the OCC’s preemption powers,” Hsu said. “Doing so will allow us to meet the challenges of increasing polarization, consistent with our rich history and deep roots.”
ABA encouraged by Hsu’s remarks
The American Bankers Association is encouraged by Hsu’s remarks defending the principle of national bank preemption, which has been essential to the functioning of the banking system for more than 160 years, ABA President and CEO Rob Nichols said. The U.S. economy benefits from a system “that provides efficiency and regulatory clarity for institutions operating across state lines while offering the flexibility they need to innovate and better serve their customers,” he added.
“We have been concerned by the increasing number of states adopting laws that challenge longstanding federal laws by attempting to give state regulators authority over the operations of national banks,” Nichols said. “States imposing their own rules on national banks, no matter how well-intentioned, creates a patchwork of differing regulatory requirements across the country and undermines the longstanding efficiencies and economic benefits derived from our dual banking system. History has demonstrated that consumers benefit when national banks compete under uniform and consistent rules overseen by the federal government, while states oversee those institutions that choose to operate under a state charter.”
ABA joined 52 state bankers associations in May in sending a letter to the OCC urging it to defend the principle of national bank preemption. “Today’s comments from Acting Comptroller Hsu signal the federal government’s commitment to defending the dual banking system, but those words must be followed by action if we want to prevent damage to our economy,” Nichols said.
