States lose to US over regulating some banks

WASHINGTON -- The federal government is the sole regulator of national bank subsidiaries, the Supreme Court said yesterday, ruling against state financial regulators.

The 5-3 decision, involving a mortgage subsidiary in Michigan, is a victory for the 1,600 national banks, which say they should not have to face a dual system of federal-state regulation in a growing area of their business. States and many private groups, including AARP, representing retirees, say a regulatory framework that includes the 50 states would better protect consumers.

The number of national bank subsidiaries has grown to about 500. They are permitted to engage in mortgage lending and a wide range of other activities, from acting as a finder for used car sales to Medicare and Medicaid counseling.

US national banks have $6 trillion in assets. Wachovia Bank, the subject of the court ruling, is the fourth-largest. The Bush administration supported Wachovia Corp. in the case.

State regulators cannot subject national banks or their subsidiaries "to rival oversight regimes," Justice Ruth Bader Ginsburg, author of the majority opinion, said in a statement she read. "Duplicative state inspection and supervision would significantly burden mortgage lending by national banks," and the same principle applies for subsidiaries, Ginsburg said.

In a dissent, Justice John Paul Stevens said the decision "threatens the vitality of most state laws as applied to national banks."

"This decision does irreparable harm to the states' historical role in advancing consumer protection," said Neil Milner, president of the Conference of State Bank Supervisors.

The case highlights an aggressive campaign by the Office of the Comptroller of the Currency to expand its reach at the expense of state regulators.