United States: A Federal Preemption Parity Framework For State Banks

In a multistate financial services marketplace, national banks and federal thrifts do business under a federal law framework that largely preempts state law and permits them to operate on a uniform basis wherever they choose to do business. Recognizing that this federal preemption can put state-chartered banks at a competitive disadvantage and thus undermine the dual banking system, Congress has enacted a number of statutes that provide parity for state banks with national banks:

• In 1980, Congress gave state banks the same ability as national banks to extend credit interstate under --"export"-- their home state usury rules.

• The Riegle-Neal interstate banking legislation (1994 and 1997) enacted substantively identical provisions to describe the law applicable to interstate national and state banks with the stated purpose of providing parity for state banks with national banks. At a minimum this provision means that state banks with branches in another state get the same treatment as would a national bank. There also is support in the legislative history for a broader parity through a framework in which the home state law of an interstate state bank is to apply parallel to the application of the National Bank Act to an interstate national bank. Under the latter approach, a state bank's home state law might apply whenever the National Bank Act applies to a national banks.

• In 1999 the Gramm-Leach-Bliley Act authorized a broad range of financial affiliations for banks. Section 104 of this legislation provides express federal preemption for an unprecedented range of companies: not only all federally insured banks and thrifts, but also all affiliates of insured depository institutions that engage in financial activities. Under Section 104, any state law that is discriminatory or unduly burdensome (as defined) for any such an entity is preempted.

These provisions provide state banks a variety of federal legal tools that help state banks operate with parity with national banks. Other tools are provided in state "wild card" and other laws and through the cooperative agreements adopted by the Conference of State Bank Supervisors.

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