Supreme Court to Hear Oral Arguments in Federal Preemption Banking Case

Contact: Christine Hall, (202) 331-2258

Washington, D.C., November 28, 2006—Tomorrow the U.S. Supreme Court will hear oral arguments in a case that will decide how heavily states can regulate subsidiaries of banks chartered under federal law. The Competitive Enterprise Institute (CEI) argued for less state regulation in an amicus brief recently filed on behalf of a group of economists and regulatory experts.

Lower courts have consistently deferred to federal regulatory agencies in these kinds of conflicts, including in the case now before the Supreme Court, Watters v. Wachovia Bank. When Wachovia chose to be regulated only by the federal Office of the Comptroller of the Currency (OCC) and no longer register its subsidiaries in the states in which the bank operates, the state of Michigan tried to force the bank’s subsidiary to comply with its state regulations.

CEI’s amicus brief points out that, contrary to what some have argued, state credit regulations aimed at protecting consumers instead often end up injuring them.

“Unfortunately, state banking regulations often increase the cost of credit for consumers and reduce the availability of credit,” said Hans Bader, counsel for special projects at CEI.

“The OCC has a duty not only to protect the well-being of banks but also that of consumers, so it can’t be assumed that state banking regulations are better,” Bader added. “The Supreme Court should uphold the right of federal preemption in this case.”