American Bankers Association Defends Importance of Federal Preemption for Nation’s Dual Banking System in a Letter to the OCC

“As Congress, the U.S. Supreme Court, OCC and every administration since President Lincoln has recognized, a strong dual banking system is essential to our nation’s economy.”

Last month, the American Bankers Association (ABA) sent a letter to the Office of the Comptroller of the Currency (OCC) Acting Comptroller Rodney E. Hood defending national bank preemption standards that have strengthened the nation’s dual banking system and been essential to the success of the economy for more than 150 years since the passage of the National Banking Act (NBA).

The ABA’s letter came in response to a May 8 letter from the Conference of State Bank Supervisors (CSBS) that asked for the OCC to rescind its preemption regulations.  

As the ABA rightly noted, the current dual banking system gives banks the freedom and flexibility to determine whether to pursue a state or national charter based on how they want to best serve their customers.

“Banks of all sizes have the flexibility to determine for themselves whether to pursue a state charter or a national charter based on how they want to operate and innovate to serve their customers. A national banking system with uniform rules provides national banks with the regulatory clarity and operational efficiencies necessary to operate in multiple states.”

In their letter, the ABA also acknowledged the importance of a uniform, national regulatory system to prevent a patchwork of state laws made possible by the NBA:

“Fully aware, after McCulloch v. Maryland, of the dangers that a patchwork of state laws would pose to the durable, uniform national bank chartering and regulatory framework it intended to establish, Congress in 1863 enshrined the foundational principles of national bank preemption in the National Bank Act.”

The ABA letter stated how the dual banking system encourages free market competition and innovation as well:

“Robust competition among national and state-chartered banks continually spurs innovation, ensuring consumers and businesses across the country and economic spectrum have meaningful access to a wide range of high-quality financial products and services.”

Thankfully, last week, OCC Acting Comptroller Rodney Hood responded with a letter reaffirming the agency’s support of federal preemption in response to the CSBS letter, arguing that it is fundamental to the federal banking system. In his letter, Hood said:

“Federal preemption is a cornerstone of the dual banking system, under which federally and state-chartered banks operate alongside one another.”

The ABA’s advocacy and Hood’s letter reinforce common sense free market principles that promote competition, innovation and economic progress needed to ensure a continued and efficient banking system.