'Marketplace' Report: Bank Regulation The Supreme Court has ruled that state financial regulators must step aside in a battle over who oversees national banks and their subsidiaries. But some private groups say a system of federal and state regulation is necessary to better protect millions of customers.

'Marketplace' Report: Bank Regulation

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ALEX CHADWICK, host:

From NPR News, it's DAY TO DAY.

The Supreme Court today ruled federal regulators, not the states, have jurisdiction over the nation's 1,600 national banks and their subsidiaries. The justice said national banks should not have to deal with 50 different sets of rules in addition to federal oversight. John Dimsdale joins us from MARKETPLACE.

John, a good thing for national banks?

JOHN DIMSDALE: They're very happy with the ruling. This challenge to state regulators was begun by Wachovia; it's the nation's fourth largest bank. And Wachovia claimed that a rule adopted by federal regulators in 2002 basically allowed the national government to push states aside and become the sole regulator of big banks with subsidiaries and branches in many states.

Richard Whiting, the director of the Financial Services Roundtable, which lobbies four big banks here in Washington, says today's decision is the end of a long series of court challenges for big banks.

Mr. RICHARD WHITING (Financial Services Roundtable): It clarifies that national banks can conduct business on a national basis without having to have the complexity of dealing with a multitude of state laws. And the industry has won almost every case along the way, but now with the Supreme Court decision, it removes the uncertainty of doing business.

CHADWICK: What about states, John? Were there big state actions kind of underway that now are upset?

DIMSDALE: Absolutely. You know, they had argued that, you know, two sets of regulations are better than one. And they'd been joined by consumer groups who said states are often more meticulous about keeping track of what banks are doing. For example, states were the first to find out that the banks - some banks had been losing costumer data. It was state investigations that uncovered the cozy relationship between student lenders and colleges. Jane Durista is a bank consumer advocate with the Financial Market center.

Ms. JANE DURISTA (Bank Analyst): We have a lot of scandals out there. We have the subprime lenders. We have the student lenders, etc., going on. And now these big institutions are going to get very largely involved in the student loan program. So you know, how you regulate it, I don't see it being done at the national level. I don't see the concern on the part of the Senate that should be there. And it has been much more evident that the states are more interested.

CHADWICK: Well, John, this is a win for the banks and a loss for state regulators, but do federal regulators view this as something that they - did they want this outcome or would they like to have help from the states?

DIMSDALE: Well, they did. They say they have plenty of examiners to keep track of the books and they have ombudsman to resolve customer complaints. And the White House entered the case on the side of Wachovia. So the federal government has been supporting this.

But you know, big banks are getting bigger and bigger and they're taking over a larger share of the industry. National banks now control 80 percent of the bank assets in the country. So federal regulators might have to bulk up.

CHADWICK: Thank you, John. John Dimsdale of Public Radio's daily business show MARKETPLACE, produced by American Public Media.

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