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In response to the recent Supreme Court decision, the Office of the Comptroller of the Currency plans to “strengthen and vigorously defend its core preemption rights.” Acting Auditor Michael Su said: Wednesday.
At the same time, the OCC will evaluate the priority regulations “to determine whether they require updating in light of the recent Cantero decision,” Su said. Cantero v. Bank of America The case concerns whether national banks must comply with state law, with the Supreme Court ruling directing lower courts to conduct a deeper analysis and take into account precedent. Regarding the preemption of state law by national banks.
Xu also pointed to the growth of big banks in recent years and the need for stronger regulation of banks that have become larger and more complex, saying the relationships between banks and non-banks have become increasingly complex, blurring the line between banking and commerce.
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Strengthening the OCC’s core preemption powers “provides certainty where it matters most: safety and soundness and compliance with federal law and regulations,” Hsu said. In those areas, the preemption powers “are legally absolute and non-negotiable, and the OCC will act to protect them.”
But Su said the OCC needs to develop a “more nuanced and balanced approach” to Barnett, the legal standard for assessing state law preemption. The OCC’s 2020 updated interpretation of preemption under Dodd-Frank “could be a useful step toward that,” he said.
“More precisely, defining and applying the Barnett standard while maintaining strong protections for core preemption rights will strengthen the OCC’s preemption rights,” Su said. “Preemption rights are in our DNA, and as we pivot from broadening to strengthening preemption rights, this attribute will be further strengthened.”
Meg Tahyal, partner and head of the financial institutions practice at law firm Davis Polk, said she expects the OCC to carefully review the priority standards. Sue pointed out that the OCC was created during the Civil War to oversee the national banking system and highlighted the risk of market fragmentation, highlighting the many dangers involved.
“I think what he’s trying to do is chart a course for the 21st century,” Tahyal said. “He’s saying we’re going to reassess, but we have to keep in mind why we have this legal principle to create a national market.”
Su’s comments suggest that the OCC’s priority rules following Dodd-Frank can no longer be trusted, he said. Alexandra Steinberg-BarrageHe is a partner at the law firm Troutman Pepper and a former executive at the Federal Deposit Insurance Corporation. “The OCC is now saying, ‘We have work to do there,'” she said.
The Cantero Act will have a significant impact both on how banks view state consumer credit laws and how they view the OCC’s preemption rules, which may be overhauled in the future, Barrage said. “But it’s also important for states, because it will inform how states understand national bank preemptions,” she added.
“All of this means more litigation, less uncertainty, less clear lines,” she said. “And instead of two parties, the OCC and the national banks, we now have the courts,” she said, adding that it’s feeding into Su’s frustration, which was evident in her speech.
During his speech, Su also noted a shift over time from direct relationships with banks to an increasingly complex network of actors involved in the delivery of banking services. “In other words, banking is beginning to resemble a global manufacturing supply chain,” he said.
That could create risks, he said, citing the recent collapse of fintech intermediary Synapse as an example. The incident showed that “the line between bank and non-bank is becoming increasingly difficult to distinguish for consumers, regulators and market participants,” Su said.
Su said the proliferation of bank-nonbank agreements underscores the need for a “more granular approach” and greater engagement between federal banking regulators and nonbank fintech companies, adding that a more detailed look at the potential risks of such arrangements is a priority.
