Editorial: A banker's best friend
The U.S. Supreme Court these days seems to be 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 in the eminent domain case of Kelo v. New London, the town wins. If it's civil liberties, as for habeas-deprived Guantanamo detainees in Hamdi v. Rumsfeld, the government gets to lock people up without charges for years. Even when the feds don't want to exercise their powers, the court says they must, as it did last month in the auto emissions case Massachusetts v. Environmental Protection Agency, which pushes the EPA to consider enforcing auto emission standards even though the agency prefers to take a pass.
Now the court has again backed big government, and this time the ruling is going to have a deep impact on the pockets of Central Massachusetts consumers.
The Supremes just decided in Watters v. Wachovia that state regulators have no 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, controls federally-chartered banks. But states asserted that they retained oversight of non-banking subsidiaries such as stand-alone mortgage lending operations, brokerages and wealth-management firms.
Forget that, said the court. If it's owned by a national bank, it's out of reach of state overseers. National banks can set up all sorts of subsidiaries, and local consumers will have no safeguards, no recourse except what the OCC allows.
Central Massachusetts is dotted with community banks, almost every one of which is state-chartered. They answer to the Division of Banks. Their activities are regulated in what is believed to be the best interest of the Bay State. But they are now facing competitors with national charters who have a regulator with no local presence, little desire to bridle growth with caution and a history of cavalierly ignoring state laws. The Division of Banks isn't the only one sidelined by this ruling. Massachusetts' Attorney General and the Department of Consumer Protection were emasculated, too.
The robes' stand poses a clear danger to the dual banking system. Smaller banks and those who operate over a limited geography have traditionally chosen state regulation. That has served banks and consumers well. The system is responsive to local markets.
The OCC, however, seems intent simply to secure as big a domain as possible. It imposes many fewer restrictions than does its state counterparts, and is much less responsive to consumer complaints. It is not a watchdog over the banking system as much as a lapdog.
Massachusetts U.S. Rep. Barney Frank (D-4th District), chairman of the House Banking Committee, promises to push legislation mandating the OCC 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 federal ones. Then no one will actually be regulating the financial services industry.
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