The U.S. Supreme Court these days seems to be just infatuated with ultimate authority. That is, if the Supreme Court sees a choice between harnessing aggressive governmental power or unfettering it, it doesn’t take a race track tout to see the latter is the odds-on favorite.
When it’s people against their town, as it was in the eminent domain case of Kelo v. New London, the town wins. If its civil liberties, as it was for the habeas-deprived Guantanamo detainees in Hamdi v. Rumsfeld, the government gets to simply lock people up without charges for years. Even when the federal government doesn’t want to exercise its powers, the court says it must, as it did last month in the emissions enforcement case Massachusetts v. Environmental Protection Agency.
Now the court has once again backed big government, and this time the ruling isn’t going to be limited to a few land takings, a confined group of suspected terrorists or a cadre of car manufacturers. This time the ruling is going to have a big impact deep into the pockets of Connecticut consumers.
Last week, the Supremes ruled in Watters v. Wachovia that state regulators, like the Connecticut Department of Banking, have no regulatory authority over subsidiaries of national banks. The U.S. Office of the Comptroller of the Currency has already made it clear that it, and only it, has any authority over federally-chartered banks. But states have asserted that they retained oversight of non-banking subsidiaries such as stand-alone mortgage lending operations, brokerages and wealth-management.
Forget that, said the high court’s majority. If it’s owned by a national bank, it’s out of reach of state regulators. A national bank can enter a state and branch with impunity, safe from the restraints and rules that govern state-chartered banks. Now, those same banks can set up all sorts of subsidiary companies, and local consumers will have no safeguards, no recourse except what the OCC allows.
Greater Hartford is dotted with community banks, almost every one of which is state chartered. They answer to the state Department of Banking. Their activities are regulated in what is believed to be the best interest of Connecticut. But they are now facing competitors with national charters who have a regulator with no local presence, no desire to bridle growth with caution, and a history of cavalierly ignoring state laws. Under the Supreme Court’s latest ruling, nationally-chartered banks can launch insurance subsidiaries, investment outlets, real estate divisions and more, all without fear of any state regulation. The Department of Banking isn’t the only one sidelined by this ruling. The state Attorney General and the Department of Consumer Protection were emasculated, too.
The robes’ ruling poses a clear danger to the dual banking system. Smaller banks and those who operate over a limited geography have traditionally chosen to be subject to state regulation. That choice has served the banks well, and served local consumers, too. Both bankers and regulators know their local markets, and have worked to make they system responsive to everyone.
The OCC, however, seems intent simply to become a regulator with as big a domain as possible. It imposes much fewer restrictions on bank activity than does its state counterparts, and it is much less responsive to consumer complaints. It is not a watchdog over the banking system as much as it is a lapdog.
Connecticut Sen. Christopher Dodd, chairman of the Senate Banking Committee, said he intends to examine whether the OCC should get tougher on its charges. That will provoke a fight, but it’s one worth sparring over. If such efforts fail, expect to see a rush of local bankers cashiering their state charters for a federal one. Then no one will actually be regulating the financial services industry.n
