[Federal Register Volume 70, Number 53 (Monday, March 21, 2005)]
[Proposed Rules]
[Pages 13413-13425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-5499]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III


Petition for Rulemaking to Preempt Certain State Laws

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice of public hearing.

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SUMMARY: This document announces a public hearing on a petition for 
rulemaking (``Petition'') that would preempt certain state laws. 
Generally, the Petition asks the FDIC to issue a rule that preempts the 
application of certain state laws to the interstate operations and 
activities of state banks. The stated purpose of the requested 
rulemaking is to establish parity between state-chartered banks and 
national banks in interstate activities and operations. A copy of the 
Petition is attached to this document. The FDIC has scheduled a hearing 
to obtain the public's views on the issues presented by the Petition. 
This document sets forth the date, time, location, and other details of 
the hearing; it also summarizes the Petition and highlights several 
issues that participants in the hearing may wish to address. 
Opportunities to make an oral presentation at the hearing are limited, 
and not all requests may be granted. Attendance at the hearing is not 
required in order to submit a written statement.

DATES: The hearing will be held on Tuesday, May 24, 2005, from 8:30 
a.m. to 5 p.m. Anyone wishing to make an oral presentation at the 
hearing must (i) deliver a written request to the Executive Secretary 
of the FDIC, no later than 5 p.m. on Monday, May 9, 2005; and (ii) 
deliver a copy of his or her written statement plus a two-page (or 
less) summary of the statement to the Executive Secretary no later than 
5 p.m. on Monday, May 16, 2005. All limited-appearance statements 
submitted in lieu of an oral presentation must be received by the 
Executive Secretary no later than 5 p.m. on Monday, May 16, 2005.

ADDRESSES: The hearing will be held in the Board room at the FDIC's 
headquarters, 550 17th Street, NW., Washington, DC.
    You may submit a written request to make an oral presentation at 
the hearing, a copy of the written statement you will present, and the 
two-page (or less) summary, or a limited-appearance statement by any of 
the following methods:
     Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html. Click on Submit Comment.
     E-mail: [email protected].
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Room 3060, Federal Deposit Insurance Corporation, 
550 17th Street, NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7 a.m. and 5 p.m.
     Public Inspection: All statements and summaries may be 
inspected and photocopied in the FDIC Public Information Center, Room 
100, 801 17th Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m. 
on business days.
     Internet Posting: Statements and summaries received will 
be posted without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: For questions regarding the conduct of 
the hearing: contact Valerie Best, Assistant Executive Secretary, (202) 
898-3812; for questions regarding substantive issues: contact Robert C. 
Fick, Counsel, (202) 898-8962; or Joseph A. DiNuzzo, Counsel, (202) 
898-7349, Legal Division, Federal Deposit Insurance Corporation, 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

[[Page 13414]]

I. Overview of the Rulemaking Petition

    The Financial Services Roundtable, a trade association for 
integrated financial services companies (``Petitioner''), submitted the 
Petition to the FDIC. The Petition asks that the FDIC adopt rules 
concerning the interstate activities of insured state banks and their 
subsidiaries that are intended to provide parity between state banks 
and national banks. Generally, the requested rules would provide that a 
state bank's home state law governs the interstate activities of state 
banks and their subsidiaries to the same extent that the National Bank 
Act (``NBA'') governs a national bank's interstate activities. A copy 
of the entire Petition is appended to this notice. The Petitioner 
requests that the FDIC adopt rules with respect to the following areas:
     The law applicable to activities conducted in a host state 
by a state bank that has an interstate branch in that state,
     The law applicable to activities conducted by a state bank 
in a state in which the state bank does not have a branch,
     The law applicable to activities conducted by an operating 
subsidiary (``OpSub'')\1\ of a state bank,
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    \1\ Generally, an operating subsidiary is subsidiary of a bank 
or savings association that only engages in activities that its 
parent bank or savings association may engage in.
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     The scope and application of section 104(d) of the Gramm-
Leach-Bliley Act (``GLBA'') regarding preemption of certain state laws 
or actions that impose a requirement, limitation, or burden on a 
depository institution, or its affiliate, and
     Implementation of section 27 of the Federal Deposit 
Insurance Act (``FDI Act'') (which permits state depository 
institutions to export interest rates).
    The Petitioner argues that it is both necessary and timely for the 
FDIC to adopt rules that clarify the ability of state banks operating 
interstate to be governed by a single framework of law and regulation 
to the same extent as national banks. According to the Petitioner, over 
the last decade the federal charters for national banks and federal 
thrifts have been correctly interpreted by the Office of the 
Comptroller of the Currency (``OCC'') and the Office of Thrift 
Supervision (``OTS''), with the repeated support of the federal courts, 
to provide broad federal preemption of state laws that might otherwise 
apply to the activities or operations of federally-chartered banking 
institutions within a state. The result, it asserts, is that national 
banks and federal savings associations now can do business across the 
country under a single set of federal rules. In contrast, the 
Petitioner believes that there is widespread confusion and uncertainty 
with respect to the law applicable to state banks engaged in interstate 
banking activities. Furthermore, it argues, this uncertainty produces 
the potential for litigation and enforcement actions, deters state 
banks from pursuing profitable business opportunities, and causes 
substantial expense to a state bank that decides to convert to a 
national bank in order to gain greater legal certainty. Finally, the 
Petitioner asserts that the FDIC has the authority, tools and 
responsibility to correct this imbalance.

II. The FDIC's Approach to the Petition

    The FDIC will hold a hearing to obtain the public's views on the 
Petition. The FDIC believes that public participation will provide 
valuable insight into the issues presented by the Petition and will 
assist the FDIC in deciding how to respond to the rulemaking request. 
The FDIC's options include: (i) Denying the entire Petition, (ii) 
granting the entire Petition, (iii) granting the Petition in part and 
denying the Petition in part, and (iv) seeking further clarification of 
the Petition from the Petitioner. If the FDIC grants all or part of the 
Petition, a notice of proposed rulemaking will be published in the 
Federal Register, and an additional opportunity for public comment will 
be provided. The FDIC is interested in obtaining the views of the 
financial institutions industry, consumer groups, state financial 
institution supervisors, other state authorities, industry trade groups 
and the general public on the legal, policy, and other issues raised in 
the Petition.

III. Issues Presented by the Petition

    Although the FDIC is particularly interested in obtaining the 
public's views on the general and specific issues highlighted in this 
notice, we also are interested in the public's views on any other legal 
or policy issues implicated by the Petition. As a result, the FDIC 
encourages interested parties to address not only the highlighted 
issues, but also all other issues raised by the Petition.

A. General Issues

    With respect to the general issues raised by the Petition, the FDIC 
requests the public's views on the following:
    G-1. Is a preemptive rule in these areas necessary to preserve the 
dual banking system?
    G-2. What would be the impact on consumers if a preemptive rule 
were issued in these areas?
    G-3. What are the implications of rulemaking in these areas for 
state banking regulation?
    G-4. Would the measures urged by Petitioner achieve competitive 
balance between federally-chartered and state-chartered financial 
institutions as advocated by the Petitioner?
    G-5. Are there alternative mechanisms available that would achieve 
the policy goals advocated by the Petitioner?
    G-6. Should the issue of competitive parity in interstate 
operations be left to Congress?
    G-7. If the FDIC determines that it has the legal authority to 
proceed with a preemptive rule, are there reasons why the FDIC should 
decline to do so? If so, what are they?
    G-8. What would be the negative impact, if any, of the FDIC 
adopting a preemptive regulation as suggested by the Petitioner?
    G-9. Do the states have a legitimate interest in how banks conduct 
business within their borders that would be undermined by the 
Petitioner's request?
    G-10. Can state banks be expected to benefit if the FDIC were to 
preempt state law in the area of interstate banking operations? If so, 
how?
    G-11. What considerations should the FDIC take into account that 
either support or challenge the proposition that Congress intended to 
provide the comprehensive parity envisioned by the Petition?
    G-12. Is there a need for clarification on what law applies to the 
interstate operations of state banks?

B. Specific Issues

    Each of the five subject areas addressed by the Petition is 
described in summary fashion below. However, you are encouraged to read 
the Petition itself (which is attached) to gain complete details on the 
requested action. Each of the five subject areas is followed 
immediately by specific issues upon which the FDIC requests public 
input.
1. The law Applicable to Activities Conducted in a Host State by a 
State Bank That has an Interstate Branch in That State
    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 
1994 (Riegle-Neal I'') \2\ generally established a federal framework 
for interstate branching for both state banks and national banks. Both 
Riegle-Neal I and amendments made to Riegle-Neal I by the Riegle-Neal 
Amendments Act of

[[Page 13415]]

1997 (``Riegle-Neal II'') \3\ contain express preemption provisions 
regarding which host state laws apply to a branch of an out-of-state 
bank.
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    \2\ Public Law 103-328, 108 Stat. 2338 (1994) (codified to 
various sections of title 12 of the United States Code).
    \3\ Public Law 105-24 (1997).
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    The Petitioner asserts that Congress enacted Riegle-Neal II to 
provide competitive equality between state banks and national banks 
with respect to interstate banking. Riegle-Neal II revised the language 
of section 24(j)(1) of the FDI Act to read as follows:

    The laws of the host state, including laws regarding community 
reinvestment, consumer protection, fair lending, and establishment 
of intrastate branches, shall apply to any branch in the host state 
of an out-of-state state bank to the same extent as such state laws 
apply to a branch in the host state of an out-of-state national 
bank. To the extent host state law is inapplicable to a branch of an 
out-of-state state bank in such host state pursuant to the preceding 
sentence, home state law shall apply to such branch.

    Riegle-Neal II, therefore, provides that host state law does not 
apply to a branch in the host state of an out-of-state, state bank to 
the same extent that host state law does not apply to a branch in the 
host state of an out-of-state national bank. When host state law does 
not apply, Riegle-Neal II provides that home state law applies. The 
Petition raises the issue of what law applies to activities of an out-
of-state, state bank in a host state in which the bank maintains a 
branch, when those activities are conducted by the bank directly, or 
through an OpSub, or by some means other than the branch. The 
Petitioner argues that the FDIC should issue a rule that provides that 
home state law applies uniformly to all business of the bank in that 
State, whether by the bank directly, through the host state branch, 
through a loan production office (``LPO''), or through some other non-
branch office, or through an OpSub.
    The FDIC requests the public's views on the following specific 
issues:
    1-1. What considerations should the FDIC take into account that 
either support or challenge the proposition that Congress granted the 
FDIC the authority to make home state law apply to all business 
conducted by a state bank in a host state in which the bank has a 
branch, whether conducted directly, or through a branch, a loan 
production office (an LPO), other office, or OpSub?
    1-2. If the FDIC were to adopt a rule as requested, who should 
determine for each state whether the NBA and OCC rules would preempt 
host state law for national banks?
    1-3. If the FDIC were to adopt a rule as requested, how should the 
applicable home state law be determined when the home state statute law 
is silent?
2. The law Applicable to Activities conducted by a State Bank in a 
State in Which the State Bank Does Not Have a Branch
    The Petitioner requests that the FDIC adopt rules to provide that 
the home state law of a state bank will apply to its activities in 
other states (i.e., any state other than its home state) to the same 
extent as the NBA applies to the activities of national banks. The 
Petitioner cites Riegle-Neal II and section 104(d) of GLBA as an 
indication of Congressional intent on this issue. In addition, 
Petitioner refers to principles of administrative law that permit an 
agency to reasonably fill in statutory gaps and address the application 
of existing laws to new developments.
    The FDIC requests the public's views on the following specific 
issue(s):
    2-1. What considerations should the FDIC take into account that 
either support or challenge the proposition that an out-of-state, state 
bank should be able to operate in a state where the bank has no 
branches under the bank's home state law to the same extent that an 
out-of-state national bank can operate under the NBA and OCC rules?
3. The law Applicable to Activities Conducted by an Operating 
Subsidiary (``OpSub'') of a State Bank
    The Petitioner requests that FDIC adopt a rule that expressly 
provides that an OpSub of a state bank will be governed by the same law 
that is applicable to its parent state bank, except when state law 
applies to an OpSub of a national bank.
    The FDIC requests the public's views on the following specific 
issues:
    3-1. What considerations should the FDIC take into account that 
either support or challenge the proposition that an OpSub should be 
able to operate under the bank's home state law to the same extent that 
an OpSub of a national bank can operate under the NBA and OCC rules?
    3-2. What considerations should the FDIC take into account that 
either support or challenge the proposition that an OpSub should be 
deemed equivalent to a division of the bank itself?
    3-3. If the FDIC were to adopt the requested rule, what 
requirements should the subsidiary meet in order to be considered an 
OpSub, e.g., should it be wholly-owned, majority-owned, or just 
controlled by the bank?
4. The Scope and Application of Section 104(d) of GLBA Regarding 
Preemption of Certain State Laws or Actions That Impose a Requirement, 
Limitation, or Burden on a Depository Institution, or Its Affiliate
    Section 104 of the GLBA (``section 104'') \4\ is titled ``Operation 
of State Law.'' It expresses the intent of Congress that the McCarran-
Ferguson Act which is entitled ``An Act to express the intent of 
Congress with reference to the regulation of the business of 
insurance'' \5\ ``remains the law of the United States.'' (Section 
104(a)). In addition, it: (a) Addresses insurance licensing 
requirements for persons engaged in the business of insurance; (b) 
addresses the extent to which a state may regulate affiliations between 
depository institutions and insurers; (c) addresses the extent to which 
states may impose restrictions on insurance sales by depository 
institutions; (d) indicates that states may not prevent or restrict 
depository institutions or their affiliates from engaging in activities 
authorized or permitted under GLBA; \6\ and (e) limits the ability of 
states to discriminate between depository institutions engaged in 
insurance activities authorized or permitted by GLBA or other federal 
law and others engaged in such activities.
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    \4\ 15 U.S.C. 6701.
    \5\ 15 U.S.C. 1011 et seq. Among other things, the McCarran-
Ferguson Act provides that ``the business of insurance, and every 
person engaged therein, should be subject to the laws of the several 
states which relate to the regulation or taxation of such 
business.'' (15 U.S.C. 1012(a)) and that ``No Act of Congress shall 
be construed to invalidate, impair, or supersede any law enacted by 
any state for the purpose of regulating the business of insurance * 
* * unless such Act specifically relates to the business of 
insurance.'' (15 U.S.C. 1012(b)).
    \6\ See section 104(d)(1).
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    The Petitioner contends that section 104(d) expressly preempts 
state laws or actions that discriminate against ``depository 
institutions'' or their affiliates. It urges the FDIC to exercise its 
authority under sections 8 and 9 of the FDI Act to adopt rules to make 
it clear that state laws, rules, or actions are preempted under section 
104(d) when they provide for disparate treatment between an out-of-
state national bank or in-state bank and an out-of-state state bank, or 
its affiliates. The Petitioner suggests, alternatively, that the FDIC 
adopt a statement of policy addressing the scope and effect of section 
104(d) for state banks. The Petitioner asserts that although state 
banks subject to FDIC regulation are the intended beneficiaries of this 
express preemption, the preemption is not being utilized by state banks 
because the statute is relatively new and complex and the relevant 
provisions have not be construed by any

[[Page 13416]]

agency or court. It states that rules are needed in view of the 
complexity and general lack of understanding of section 104(d).
    The Petitioner argues that the breadth of section 104(d) preemption 
and its purpose to reach state law or actions that would provide 
disparate treatment for any type of depository institution (including 
an out-of-state state bank) in relation to its competitors is evident 
from section 104(d)'s language.
    The Petitioner has described certain actions that if taken by the 
FDIC will, in its opinion, clarify by regulation or policy statement 
that state laws, rules, or actions cannot differentiate between in-
state and out-of-state banks. The Petitioner specifically requests that 
the FDIC issue a rule or policy statement: (a) Stating that the section 
104 preemption applies to insured banks and their subsidiaries, 
affiliates and associated persons; (b) defining a ``person'' to include 
a depository institution, subsidiary, affiliate, and associated person; 
(c) stating that the word restrict'' in section 104(d)(1) includes any 
state law, rule, interpretation or action that calls for any limitation 
or requirement; (d) addressing each of the four non-discrimination 
provisions in section 104(d)(4) to confirm that each is a distinct test 
and that any state law or action that fails one test is preempted; (e) 
addressing the scope of ``actions'' in section 104(d)(4) to include all 
types of formal or informal administrative actions by any state or 
local governmental entity, including decisions with respect to civil 
enforcement of state rules; (f) addressing section 104(d)(4)(D)(i) in 
light of the terms used in subparagraph (ii) to specify that paragraph 
(i) addresses treatment under state law of an out of state, state bank 
which would be an ``insured depository institution,'' that is different 
from the treatment of any national bank or in-state state bank which 
would be an ``other person engaged in the same activity'' under these 
provisions; and (g) defining ``state law'' to include laws, ordinances 
and rules of political subdivisions, including any counties and 
municipalities.
    The FDIC requests the public's views on the following specific 
issues:
    4-1. GLBA is a not codified as part of the FDI Act, is silent as to 
rulemaking and applies to all insured depository institutions. What 
barriers, if any, would there be to the FDIC adopting a regulation or 
policy statement implementing section 104?
    4-2. What considerations should the FDIC take into account that 
either support or challenge the proposition that section 104 preempts 
state law in the manner described by Petitioner?
    4-3. What barriers, if any, would there be to the FDIC adopting a 
regulation or policy statement applicable to all insured depository 
institutions based on section 104?
    4-4. Is it reasonable for the FDIC to read section 104 as having 
some application to interstate banking operations in general?
    4-5. The areas of section 104 Petitioner identifies for rulemaking 
are very discrete but taken together may have a broad impact. What are 
the overall implications (favorable as well as negative) of adopting 
the section 104 regulatory guidance suggested by the Petitioner?
5. Implementation of Section 27 of the FDI Act (Which Permits State 
Depository Institutions To Export Interest Rates)
    Section 27 of the FDI Act (``section 27'') \7\ establishes the 
maximum amount of interest that a state-chartered insured depository 
institution or insured branch of a foreign bank (collectively, ``state 
bank'') may charge its borrowers. Generally, the statute authorizes a 
state bank to charge interest at the greater of the rate allowed by the 
laws of the State, territory, or district where the bank is located or 
not more than one percentage point above the discount rate on 90-day 
commercial paper at the Federal Reserve bank for the Federal Reserve 
district where the bank is located.\8\ The statute also specifies that 
state banks may charge the rates authorized by the statute 
``notwithstanding any State constitution or statute which is hereby 
preempted for the purposes of this section.'' \9\ As is the case under 
section 85 of the NBA for national banks, section 27 allows state banks 
to charge out-of-state borrowers interest at the rates allowed by the 
law of the State where the bank is located, even if such rates exceed 
the usury limitations imposed by the borrower's state of residence.\10\
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    \7\ 12 U.S.C. 1831d.
    \8\ Section 27 was added to the FDI Act by section 521 of the 
Depository Institutions Deregulation and Monetary Control Act of 
1980 (``DIDMCA'').
    \9\ Section 27(a) of the FDI Act; see generally Greenwood Trust 
Co. v. Commonwealth of Massachusetts, 971 F.2d 818 (1st Cir.), cert. 
denied, 506 U.S. 1052 (1993).
    \10\ This ability to charge interest at the rates allowed by the 
state where the bank is located is often referred to as the 
``exportation doctrine.''
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    Section 27 contains two subsections which are patterned after 
provisions in the NBA. Subsection (a) corresponds to section 85 of the 
NBA (``section 85''),\11\ which addresses the interest rates that 
national banks are authorized to charge their borrowers. Subsection (b) 
corresponds to section 86 of the NBA (``section 86''),\12\ which 
addresses penalties and limitations of actions for charging interest in 
excess of the amount allowable under section 85.
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    \11\ 12 U.S.C. 85.
    \12\ 12 U.S.C. 86.
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    Because section 27 was enacted to provide state banks ``competitive 
equality'' with national banks and is patterned after the corresponding 
provisions in the NBA, the FDIC and the courts have construed section 
27 in virtually the same manner as the OCC and the courts have 
construed sections 85 and 86. For example, in General Counsel's Opinion 
No. 10 (``GC Opinion No. 10''),\13\ the FDIC's General Counsel 
concluded that section 27 and section 85 should be construed in pari 
materia and that the term interest, for purposes of section 27, 
includes those charges that a national bank is authorized to charge 
under section 85 and the OCC's interpretive rule defining interest for 
purposes of section 85.\14\ In General Counsel's Opinion No. 11 (``GC 
Opinion No. 11'') \15\ the FDIC's General Counsel interpreted section 
27 as applying to state banks operating interstate branches in a manner 
similar to the OCC's interpretation of the application of section 85 to 
national banks operating interstate branches. In GC Opinion No. 11 it 
was observed that, like an interstate national bank under section 85, a 
state bank is ``located'' in the state where it is chartered and in 
each state where it has a branch. GC Opinion No. 11 also addressed the 
criteria for determining when the state laws imposed by the bank's home 
state or host state should govern the amount of interest authorized on 
a loan transaction. In addition, the FDIC has interpreted section 27 as 
providing state banks: (a) The same ``most favored lender'' status 
under section 27 as national banks are provided under section 85; (b) 
the same right to export interest authorized by the state laws of the 
state where the bank is located to out-of-state borrowers; and (c) the 
same exclusive remedy for usury violations as is provided national 
banks under section 86.\16\
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    \13\ GC Opinion No. 10, 63 FR 19258 (Apr. 17, 1998).
    \14\ 12 CFR 7.4001(a).
    \15\ GC Opinion No. 11, 63 FR 27282 (May 18, 1998).
    \16\ FDIC Advisory Opinion No. 81-3, February 3, 1981, reprinted 
in [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ] 81,006; 
FDIC Advisory Opinion No. 81-7, March 17, 1981, reprinted in [1988-
1989 Transfer Binder] Fed. Banking L. Rep. (CCH) ] 81,008; FDIC 
Advisory Opinion No. 02-06, December 19, 2002, reprinted in Fed. 
Banking L. Rep. (CCH) ] 82-256.

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[[Page 13417]]

    The Petitioner observes that the OCC and OTS have adopted rules 
codifying the scope of the relevant parallel interest provisions \17\ 
contained in their respective statutes.\18\ Therefore, the Petitioner 
requests that the FDIC adopt parallel provisions by rule to allow state 
banks to operate in a matching legal framework under section 27.
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    \17\ 12 CFR 7.4001; 12 CFR 560.110.
    \18\ The relevant parallel interest provision for the OTS is 
section 4(g) of the Home Owners Loan Act (12 U.S.C. 1463(g)), which 
was derived from section 522 of DIDMCA.
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    Therefore, the FDIC requests the public's views on the following 
specific issues:
    5-1. Should the FDIC adopt a parallel rule implementing section 27 
for state banks similar to 12 CFR 7.4001 and 12 CFR 560.110?
    5-2. Should any other issues be addressed by rulemaking to provide 
state banks competitive equality with national banks regarding section 
27? For example, 12 CFR 7.5009 addresses the location under section 85 
of national banks operating exclusively through the Internet. Is a 
similar rule needed for state banks under section 27?
    Under section 525 of the Depository Institutions Deregulation and 
Monetary Control Act states may ``opt-out'' of coverage under section 
27 at any time.\19\ The FDIC believes that Iowa, Puerto Rico, and 
Wisconsin are the only jurisdictions that have exercised this authority 
and not rescinded it.
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    \19\ Section 525 of DIDMCA, like section 528 that provides 
lenders a choice of interest rates, is contained in various notes in 
the United States Code following the various sections that they 
affect. See, e.g., 12 U.S.C. 1831d (note).
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    Therefore, the FDIC requests the public's views on the following 
specific issue:
    5-3. What effect would the exercise of the authority to opt-out of 
coverage under section 27 have on the rule or rules the Petitioner is 
requesting?

IV. Public Hearing

    The FDIC will hold a hearing to obtain the public's views on all 
issues raised by the Petition. The hearing will be held on Tuesday, May 
24th, 2005 from 8:30 a.m. to 5 p.m. in the Board room at the FDIC's 
headquarters, 550 17th Street, NW., Washington, DC. Hearing Officers 
designated by the FDIC will preside over the hearing. The hearing will 
be informal, and the rules of evidence will not apply. However, only 
the Hearing Officers may question a participant during a presentation. 
Each participant making an oral presentation at the hearing will be 
limited to 15 minutes. While oral presentations are limited to 15 
minutes, there is no limit on the length of a participant's written 
statement.
    Anyone wishing to make an oral presentation at the hearing must (i) 
deliver a written request to the Executive Secretary, Federal Deposit 
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429 no 
later than 5 p.m. on Monday, May 9th, 2005; and (ii) deliver a copy of 
his or her written statement plus a two-page (or less) summary to the 
Executive Secretary no later than 5 p.m. on Monday, May 16th, 2005. 
Anyone wishing to submit a written statement of his or her views 
without making an oral presentation at the hearing may submit a 
limited-appearance statement. All limited-appearance statements must be 
received by the Executive Secretary no later than 5 p.m. on Monday, May 
16th, 2005. Attendance at the hearing is not required in order to 
submit a written statement. Each request to make an oral presentation 
and each participant's statement must include the participant's name, 
address, telephone number, e-mail address, and, if applicable, the name 
and address of the institution or organization the participant 
represents.
    Opportunities to make an oral presentation at the hearing are 
limited, and not all requests may be granted. The FDIC will notify each 
person who has submitted a request to make an oral presentation at the 
hearing whether the FDIC will be able to accommodate his or her 
request. The notice for each person whose request has been granted will 
include the time scheduled for his or her presentation and a tentative 
agenda. Depending upon the number of participants requesting an oral 
presentation, participants may be organized into panels of two or three 
to accommodate as many participants as possible.
    The hearing will be transcribed. The FDIC will provide attendees 
with any auxiliary aids (e.g., sign language interpretation) required 
for this meeting. Those attendees needing such assistance should call 
(202) 416-2089 (Voice); or (202) 416-2007 (TTY), to make necessary 
arrangements.

    Dated in Washington DC, this 16th day of March, 2005.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

Appendix: Petition for FDIC Rulemaking Providing Interstate Banking 
Parity for Insured State Banks, by Letter From the Financial Services 
Roundtable, 1001 Pennsylvania Ave., NW., Suite 500 South, Washington, 
DC 20004, Tel 202-289-4322, Fax 202-628-2507, dated March 4, 2005

March 4, 2005

Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation, 550 
Seventeenth Street, NW., Washington, DC 20429.

Re: Petition for FDIC Rulemaking Providing Interstate Banking Parity 
for Insured State Banks

    Dear Mr. Feldman: The Financial Services Roundtable \1\ 
(``Roundtable'') respectfully petitions the Federal Deposit Insurance 
Corporation (``FDIC'') to promulgate rules under the Federal Deposit 
Insurance (``FDI'') Act and Section 104(d) of the Gramm-Leach-Bliley 
(``GLB'') Act, 15 U.S.C. 6701, to provide parity for state banks and 
national banks. Specifically, the proposed rule would provide that a 
state bank's home state law governs the interstate activities of 
insured state banks and their subsidiaries to the same extent that the 
National Bank Act governs a national bank's interstate business.
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    \1\ The Financial Services Roundtable represents 100 of the 
largest integrated financial services companies providing banking, 
insurance, and investment products and services to the American 
consumer. Roundtable member companies provide fuel for America's 
economic accounting directly for $18.3 trillion in managed assets, 
$678 billion in revenue, and 2.1 million jobs.
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    The FDIC has ample authority to take each of the requested actions 
pursuant to the broad delegation of authority in the FDI Act. It is now 
clear that FDIC action is required to achieve the result that Congress 
sought in the 1997 amendment to the Riegle-Neal Interstate Banking and 
Branching Efficiency Act of 1994 (``Riegle-Neal I''), Pub. L. 103-328, 
108 Stat. 238. See Riegle-Neal Amendments Act of 1997, Pub. L. 105-24 
(1997) (amending 12 U.S.C. 1831a(j)) (``Riegle-Neal II''). The 
requested rulemaking would implement the historic decision of Congress 
in 1997 to provide competitive equality for state banks and national 
banks in interstate banking.
    The Roundtable submits that it is both necessary and timely for the 
FDIC to adopt rules making clear the ability of state banks operating 
interstate to be

[[Page 13418]]

governed by a single framework of law and regulation to the same extent 
as national banks. Such an action would ensure the continued vitality 
of the dual banking system. Accordingly, the Roundtable requests that 
the FDIC promulgate rules that:
    1. Clarify that the governing law applicable to activities 
conducted in a host state by a state bank that has an interstate branch 
in that state is its home state law to the same extent that host state 
law is preempted by the National Bank Act. The FDIC should make clear 
that ``home'' state law applies to an out-of-state state bank in a 
``host'' state to the same extent as the National Bank Act applies to 
an out-of-state national bank, whether the business of the bank is 
conducted by the bank through the host state branch, by or through an 
operating subsidiary, or by any other lawful means.
    2. Clarify that the governing law applicable to activities 
conducted by a state bank in a state in which the state bank does not 
have a branch is its home state law to the same extent that host state 
law is preempted by the National Bank Act. The FDIC should make clear 
that a state bank may operate under home state law in any other state 
to the same extent that an out-of-state national bank may operate under 
the National Bank Act or under rules promulgated by the Comptroller of 
the Currency (``OCC''). Such a rule would give effect to the policy 
underlying Riegle-Neal II and the preemption of discriminatory state 
law provided in Section 104(d) of the Gramm-Leach-Bliley (``GLB'') Act 
(``Section 104(d)''), 15 U.S.C. 6701(d).
    3. Clarify that the law applicable to activities conducted by an 
operating subsidiary of a state bank is the same law applicable to the 
bank itself. The FDIC should clarify that when a state bank has 
established an ``operating subsidiary'' pursuant to its home state law, 
that subsidiary will be treated under FDIC rules as if it were the 
state bank itself. Thus, the operating subsidiary will be subject to 
state law outside its home state in the same manner as its bank parent 
is subject to such state law. Such rules would allow state bank 
operating subsidiaries to engage in interstate business under the same 
uniform rules as its parent bank, just as national bank operating 
subsidiaries operate under uniform OCC rules.
    4. Adopt rules construing the scope and application of Section 
104(d) to make clear that a state law or action is expressly preempted 
under Section 104(d) when it imposes a requirement, limitation, or 
burden on a state bank, or its affiliate, that does not also apply to 
an out-of-state national bank or in-state bank. Section 104(d) 
expressly preempts state laws or actions that discriminate against 
``insured depository institutions','' or their affiliates, as defined 
in the FDI Act. Accordingly, Section 104(d) provides independent basis 
and support for each of the above requests. Moreover, through 
implementing rules, the FDIC would provide greater certainty to insured 
state banks with respect to the scope of this express federal 
preemption in general. This provision is not well understood and we 
believe that a rulemaking, not litigation, is the appropriate means to 
carry out Congressional intent and achieve needed clarity.
    5. Implement Section 27 of the FDI Act by adopting a rule parallel 
to the rules promulgated by the OCC and Office of Thrift Supervision 
(``OTS''). The scope and implementation of the express preemption for 
the ``interest rate'' charged in interstate lending transactions by 
state and national banks under Section 27 of the FDI Act and Section 85 
of the National Bank Act has been authoritatively addressed by the 
courts and in agency interpretations. The OCC and OTS have adopted 
rules codifying the scope of the respective statutory provisions for 
federal institutions. The FDIC should adopt a parallel rule for insured 
state banks and thus codify existing agency interpretations.
    In this letter, we will address (A) the urgent need for the 
requested rulemaking and the real costs of inaction, (B) the FDIC's 
authority to promulgate rules of the scope requested, (C) the 
legislative history demonstrating that Congress specifically intended 
in Riegle-Neal II to prevent erosion of the dual banking system and in 
Section 104(d) to prevent disparate treatment and ensure that all banks 
could compete on relatively equal terms in today's interstate financial 
services marketplace, and (D) the scope of the proposed rule provisions 
in greater detail. The Roundtable appreciates the FDIC's consideration 
of this petition.

A. A Rulemaking Is Necessary and the Costs of Inaction Will Be 
Significant

    The requested FDIC action in this petition is necessary to complete 
the task of restoring balance in the dual banking system that Congress 
sought to achieve in 1997. Riegle-Neal II reversed a decision in 1994 
to treat state and national banks differently with respect to 
``applicable law.'' In Riegle-Neal I, state and national banks were 
under the same rules for the establishment of interstate branches. 
However, Riegle-Neal I provided that when a national bank branched 
interstate into a host state, it was in effect generally subject to the 
National Bank Act,\2\ while the state bank in a parallel case was made 
subject to host state law. While interstate national banks could 
operate under a single law, interstate state banks were subjected to 
multiple state laws.
---------------------------------------------------------------------------

    \2\ The Riegle-Neal applicable law provision for national banks 
states: ``(A) In general The laws of the host State regarding 
community reinvestment, consumer protection, fair lending, and 
establishment of intrastate branches shall apply to any branch in 
the host State of an out-of-State national bank to the same extent 
as such State laws apply to a branch of a bank chartered by that 
State, except--(i) when Federal law preempts the application of such 
State laws to a national bank; or (ii) when the Comptroller of the 
Currency determines that the application of such State laws would 
have a discriminatory effect on the branch in comparison with the 
effect the application of such State laws would have with respect to 
branches of a bank chartered by the host State.'' 12 U.S.C. 
36(f)(1)(A). The effect of this provision is that any host state 
law, including a community reinvestment, consumer protection, fair 
housing, or intrastate branching law, that is preempted under the 
National Bank Act does not apply to the national bank branch (or the 
bank) in the host state.
---------------------------------------------------------------------------

    That disparity led Congress in 1997 to amend Riegle-Neal to adopt 
an applicable law provision for state banks that closely tracked the 
national bank provision in Section 36(f) of the National Bank Act.\3\ 
The purpose of the 1997 amendment, which was stated repeatedly by its 
sponsors, was to provide parity between state banks and national banks 
with respect to interstate banking.\4\ By ``parity,'' they plainly 
meant the ability of state banks to do business interstate under a 
uniform law (home state law) just as national banks were authorized to 
do under Riegle-Neal.\5\
---------------------------------------------------------------------------

    \3\ Compare 12 U.S.C. 1831a(j)(1) (text in footnote 9) with 12 
U.S.C. 36(f)(1)(A) (text in footnote 2).
    \4\ As stated by the led sponsor in the House, Rep. Roukema: 
``The essence of this legislation is to provide parity between 
state-chartered banks and national banks.'' 143 Cong. Rec. H3088 
(daily ed. May 21, 1997).
    \5\ See, e.g., statements by the principal sponsors of the 1997 
Amendment, Rep. Roukema (``* * * we have * * * with this action, 
protected the dual banking system while at the same time gaining the 
advantages of interstate banking''), 143 Cong. Rec. H4231 (daily ed. 
June 24, 1997), and Chairman D'Amato (``Enactment of H.R. 1306 also 
would bolster efforts of New York and other states to make sure that 
State[-]chartered banks have the powers they need to compete 
efficiently and effectively in an interstate environment''), 143 
Cong. Rec. S5637 (daily ed. June 12, 1997).
---------------------------------------------------------------------------

    Over the last decade, the federal charters for national banks and 
federal thrifts have been correctly interpreted by the OCC and OTS, 
with the repeated support of the federal courts, to provide broad 
federal preemption of state laws that might appear to apply to the 
activities or operations of a banking institution in that state. The 
result is that, in general, national banks and

[[Page 13419]]

federal thrifts now can do business across the country under a single 
set of federal rules. This framework is appropriate for these federal 
entities in a national financial marketplace. At the same time, in this 
marketplace a uniform national bank system based on preemption and 
interstate banking undoubtedly presents a major challenge to the dual 
banking system and state banks.
    In contrast to the general certainty enjoyed by federal 
institutions, there is widespread confusion and uncertainty with 
respect to applicable law governing state banks engaged in interstate 
banking activities. The current uncertainty governing the interstate 
activities of state banks has had, and will continue to have, several 
significant adverse effects. Uncertainty carries the potential for 
litigation and enforcement actions arising from disagreements between 
regulators, or between a host state regulator and a state bank engaged 
in interstate activity. Regulatory uncertainty deters state banks from 
pursuing profitable business opportunities. When a state bank converts 
to a national charter to gain greater legal certainty, it incurs 
substantial expense. Each of these consequences has economic 
significance for state banks and direct implications for the FDIC's 
enforcement and safety-and-soundness responsibilities.
    Moreover, a series of recent major merger and conversion 
transactions has resulted in an unprecedented migration of assets to 
the national banking system. It is now apparent that, absent a more 
certain federal regulatory environment, the state charter will continue 
to be perceived as less competitive than a national bank charter.
    This is the very result that Congress intended to prevent.\6\ In 
1994, 1997 and 1999 Congress took bold and historic actions to provide 
uniform federal rules to govern all interstate banking and to ensure 
that individual state laws could not disfavor any type of depository 
institution in the multistate financial services marketplace. It is now 
apparent that the express terms of these statutes have not on their own 
force been able to ensure, as Congress intended in enacting Riegle-Neal 
II, that state banks can participate in interstate banking business on 
a par with national banks and that state banks face significant state 
law obstacles when they seek to do business outside their home state. 
As a consequence, the state banking system, as we have known it, is 
fundamentally threatened.
---------------------------------------------------------------------------

    \6\ The statement by Rep. LaFalce before final House passage of 
the 1997 amendments captures the purpose to redress the negative 
effects of the 1994 Riegle-Neal applicable provision for state 
banks: ``Why [must we act now]? Well, it is due to the fact that the 
national bank regulator has the authority to permit national banks 
to conduct operations in all the states with some level of 
consistency. In contrast, under the existing interstate legislation, 
state banks branching outside their home state must comply with a 
multitude of different state banking laws in each and every state in 
which they operate.'' 143 Cong. Rec. H3094 (daily ed. May 27, 1997). 
See the discussion of the legislative history in the next section.
---------------------------------------------------------------------------

    In the national financial services marketplace, consumers and 
providers benefit when banks can provide products and services under a 
single legal framework applicable across state lines. At the same time, 
bank customers and the economy also benefit from the diversity, 
innovation and checks provided by a strong and dynamic dual banking 
system involving large, regional, and small banks. From the perspective 
of all parties--consumers, financial institutions, and regulators--
further development of a framework of state bank regulation and 
supervision that is effective, efficient, and seamless across state 
lines is the right goal. In today's multistate system, that is an 
essential goal. A banking system in which virtually all interstate 
banks have national charters and state banks are overwhelmingly local 
is not the dual banking system this country has historically enjoyed. 
The dual banking system will retain the dynamic vitality that has made 
it a mainspring for progress and strength in banking only if it can 
provide meaningful interstate competitive parity for all interstate 
state banks, whether cross-border, regional, or national. Significant 
and unacceptable disparity exists today.
    The FDIC has the authority, tools, and responsibility under the FDI 
Act to correct this imbalance. To implement Congressional intentions it 
now must promptly provide a uniform interstate applicable law regime 
for state banks and give practical reality to the express preemption of 
discriminatory state laws.

B. The FDIC Has Authority To Adopt the Requested Rules

    The FDIC has ample rulemaking authority to address each of the 
Roundtable's requests. Section 9 of the FDI Act vests the FDIC with 
broad authority to adopt rules ``it may deem necessary to carry out the 
provisions of this Act or of any other law which it has the 
responsibility of administering or enforcing.'' 12 U.S.C. 1819.\7\
---------------------------------------------------------------------------

    \7\ The FDIC's rulemaking authority parallels the OCC's 
authority. See 12 U.S.C. 93(a) ((``the Comptroller of the Currency 
is authorized to prescribe rules and regulations to carry out the 
responsibilities of the office''). The statutory provision 
authorizing the OCC to issue rules is directly analogous to Section 
9 of the FDI Act. Compare 12 U.S.C. 1819 (FDIC vested with authority 
``to prescribe * * * such rules and regulations as it may deem 
necessary to carry out the provisions of this chapter or of any 
other law which it has the responsibility of administering or 
enforcing * * *'').
---------------------------------------------------------------------------

    The FDIC is vested with responsibility for administering Sections 
24 and 27 of the Act to accomplish what Congress intended. Congress, 
through Section 9, has vested the FDIC with authority to carry out 
Sections 24 and 27. Moreover, under basic principles of administrative 
law, agency rules that fill or address a statutory gap generally are 
afforded considerable deference by courts. See Chevron U.S.A., Inc. v. 
Natural Resources Defense Council, Inc., 467 U.S. 837, 865 (1984) 
(``Chevron''). Section 9's ``generally conferred authority'' makes it 
apparent ``that Congress would expect the agency to be able to speak 
with the force of law when it addresses ambiguity in the statute or 
fills a space in the enacted law, even one about which `Congress did 
not actually have an intent' as to a particular result.'' United States 
v. Mead, 533 U.S. 218, 229 (2001) (quoting Chevron, 467 U.S. at 845).
    Riegle-Neal I and II fundamentally changed federal law for state 
and national banks by authorizing banks to engage fully in banking 
transactions in other states through interstate branching.\8\ As a 
corollary, Riegle-Neal I provided federal ``applicable law'' statutes 
to govern the new interstate banking regime. As originally enacted, the 
respective applicable law provisions treated national and state banks 
differently. Riegle-Neal II sought to redress that disparity and 
provided substantively the same rule for state banks as was originally 
provided for national banks.\9\ The FDIC plainly has authority to 
implement Riegle-Neal II.
---------------------------------------------------------------------------

    \8\ Prior to enactment of Riegle-Neal, neither state nor 
national banks could establish branches outside their home state. 
Moreover, except with respect to interest charges under 12 U.S.C. 85 
and 12 U.S.C. 1831d, federal law did not provide guidance to either 
state banks or national banks regarding the law applicable to 
transactions that banks made with customers outside their home 
states.
    \9\ See generally section 24(j):
    (j) ACTIVITIES OF BRANCHES OF OUT-OF-STATE BANKS.--
    (1) APPLICATION OF HOST STATE LAW.--The laws of a host State, 
including laws regarding community reinvestment, consumer 
protection, fair lending, and establishment of intrastate branches, 
shall apply to any branch in the host State of an out-of-State 
national bank. To the extent host State law is inapplicable to a 
branch of an out-of-State bank in such host State pursuant to the 
preceding sentence, home State law shall apply to such branch.
    (2) ACTIVITIES OF BRANCHES.--An insured State bank that 
establishes a branch in a host State may conduct any activity at 
such branch that is permissible under the laws of the home State of 
such bank, to the extent such activity is permissible either for a 
bank chartered by the host State (subject to the restrictions in 
this section) or for a branch in the host State of an out-of-State 
national bank.
    (3) SAVINGS PROVISION.--No provision of this subsection shall be 
construed as affecting the applicability of--
    (A) any State law of any home State under subsection (b), (c), 
or (d) of section 44; or
    (B) Federal law to State banks and State bank branches in the 
home State or the host State.
    (4) DEFINITIONS.--The terms ``host State'', ``home State'', and 
``out-of-State bank'' have the same meanings as in section 44(f). 12 
U.S.C. 1831a(j).

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[[Page 13420]]

    The FDIC also has the authority to implement the nondiscrimination 
provisions of Section 104(d) insofar as the GLB Act addresses state 
insured depository institutions and to construe the express preemption 
of discriminatory state law provided in Section 104(d). Section 9 vests 
the FDIC with authority to promulgate rules to carry out any statute 
the FDIC is responsible for administering or enforcing. The provisions 
of the GLB Act that touch upon state depository institutions fall 
within the regulatory ambit of the FDIC.
    A statutory gap, or a clarification of a statute to effect 
Congressional intent, can be--and should be--addressed by an agency 
rule. Where, as here, a statute is ambiguous regarding its application 
to ``a particular result'' (Mead, 533 U.S. at 229), courts have long 
recognized that agencies with rule-making authority must be permitted 
to address the statutory gap as ``necessary for the orderly conduct of 
its business.'' United States v. Storer Broadcasting Co., 351 U.S. 192, 
202-03 (1956) (finding also that the statute ``must be read as a whole 
and with appreciation of the responsibilities of the body charged with 
its fair and efficient operation''), National Petroleum Refiners Ass'n, 
482 F.2d at 681. (``[T]here is little question that the availability of 
substantive rule-making gives any agency an invaluable resource-saving 
flexibility in carrying out its task of regulating parties subject to 
its statutory mandate.''). Courts have consistently applied these 
administrative law principles--and extended Chevron deference--to rules 
and regulations issued by the FDIC under its broad rulemaking 
authority.\10\ There can be little doubt that Section 9 of the FDI Act 
vests the FDIC with authority to address these issues.\11\
---------------------------------------------------------------------------

    \10\ See, e.g., National Council of Savings Institutions v. 
FDIC, 664 F.Supp. 572 (D.D.C. 1987) (sustaining FDIC regulation 
governing the proper relationship between FDIC-insured banks and 
their securities-dealing ``subsidiaries'' or ``affiliates'') See 
also Wells Fargo Bank, N.A. v. FDIC, 310 F.3d 202, 208 (D.C. Cir. 
2002) (affording Chevron deference to FDIC rule for ``second 
generation'' transactions, because statute was silent as to 
treatment of these transactions and rule would ``implement 
Congressional intent because it prevents financial institutions from 
manipulating the system''); America's Community Bankers v. FDIC, 200 
F.3d 822, 834 (D.C. Cir 2000) (upholding FDIC denial of refund 
assessment under Chevron, where statute merely stated that FDIC 
could utilize ``any other factors'' to ``set'' the assessment amount 
and thus was ``facially ambiguous''); Federal Deposit Ins. Corp. v. 
Sumner Financial Corp., 451 F.2d 898, 902-903 (5th Cir. 1971) 
(affording ``great deference'' to FDIC interpretation of FDI Act 
through regulation concerning advertising by regulated banks).
    \11\ Riegle-Neal I and II provide express ability for a state 
bank to establish a branch in a host state, to thus gain the ability 
to engage in any or all of its permitted activities in that host 
state, and to apply its home state law (unless a national bank, and 
thus the state bank, must apply host state law) to that branch. But 
the statutory text does not directly address the governing law 
applicable to the state bank's activities permitted in the host 
state under the authority provided by Riegle-Neal, but conducted by 
the bank outside of its branch, by an operating subsidiary or 
another means. An ordinary task of a regulatory agency is to 
construe such a statutory provision in a rule.
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    There is no reason that a rulemaking by the FDIC similar to ones 
conducted by the OCC should be analyzed any differently. The National 
Bank Act does not expressly address the law applicable to a national 
bank outside states where it has branches. Prior to the adoption of the 
OCC rules, a number of courts determined that national banks were 
subject to state laws that did not conflict with the provisions of the 
National Bank Act.\12\ Nonetheless, the courts have upheld the OCC 
rules and determinations that make clear that national banks and their 
operating subsidiaries are governed by the National Bank Act wherever 
they do business. These OCC rules have generally received Chevron 
deference.\13\
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    \12\ See National State Bank v. Long, 630 F.2d 981 (3d Cir. 
1980); Perdue v. Crocker National Bank, 702 P.2d 503 (Cal. 1985); 
Best v. U.S. National Bank, 739 P.2d 554 (Or. 1987).
    \13\ See, e.g., NationsBank of N.C. v. VALIC, 513 U.S. 251 
(1995); Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 33 
(1996); Wachovia Bank, N.A. v. Watters, 334 F. Supp. 2d, 957, 963-65 
(W.D. Mich. 2004); Wachovia v. Burke, 319 F. Supp. 2d 275 (D. Conn. 
2004).
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    Further, under Section 8 of the FDI Act, an insured bank may be 
subject to an enforcement action of the FDIC if ``in the opinion of the 
appropriate Federal banking agency, any insured depository institution, 
depository institution which has insured deposits, or any institution-
affiliated party is engaging or has engaged, or the agency has 
reasonable cause to believe that the depository institution or any 
institution-affiliated party is about to engage, in an unsafe or 
unsound practice in conducting the business of such depository 
institution, or is violating or has violated, or the agency has 
reasonable cause to believe that the depository institution or any 
institution-affiliated party is about to violate, a law, rule, or 
regulation.'' 12 U.S.C. 1818(b)(1). The FDIC has authority to adopt 
rules with respect to legal compliance by insured banks that provide 
guidance to those banks and agency staff charged with making 
supervisory, enforcement and examination decisions. That can be 
accomplished by using authority under Section 9 to address issues of 
compliance with state law, including the meaning and scope of Section 
104.\14\
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    \14\ The FDIC previously has engaged in a rulemaking in 
comparable circumstances. In 1982, the FDIC adopted a Statement of 
Policy addressing the applicability of the Glass-Steagall Act to 
securities activities of subsidiaries of insured nonmember banks. 47 
FR 38984, September 3, 1982. That Statement of Policy construed 
Section 20 of the Glass-Steagall Act and concluded that the 
restrictions in that section on securities affiliates of insured 
banks did not prevent insured nonmember banks subject to the FDIC's 
regulation and supervision from having ``bona fide'' securities 
affiliates or subsidiaries. The provisions of Glass-Steagall 
construed in the Statement of Policy (like the provisions of GLB at 
issue here) were not part of the FDI Act, but the FDIC issued a rule 
to provide clear guidance to insured state banks, and the exercise 
of the FDIC's rulemaking authority in that case was upheld. See 
National Council of Savings Institutions v. FDIC, 664 F.Supp. 572 
(D.D.C. 1987). Issuing guidance to state insured banks concerning 
the scope of Section 104 of the GLB Act is a necessary and 
appropriate exercise of the FDIC's authority to carry out its 
regulatory mandate.
---------------------------------------------------------------------------

C. The Requested Rulemakings Would Advance the Congressional Purpose To 
Prevent Erosion of the Dual Banking System by Maintaining Parity 
Between State and National Banks

    Beginning with the enactment of Section 27, Congress has taken bold 
and historic action on more than one occasion to preempt a wide range 
of state laws so that state banks can operate on a par with national 
banks in the multistate financial services marketplace that has come 
into existence in recent decades. The broad sweep of what Congress 
intended to accomplish is evident in the terms and legislative history 
of Riegle-Neal II and Section 104(d). Those statutes further the 
decades-old principle of competitive equality embodied in federal law 
and repeatedly recognized by the courts and the FDIC.\15\ The requested 
FDIC rule would implement these Congressional purposes.
---------------------------------------------------------------------------

    \15\ See First Nat'l Bank v. Walker Bank & Trust Co., 385 U.S. 
252 (1966); First Nat'l Bank in Plant City v. Dickinson, 396 U.S. 
122 (1969); FDIC Advisory Letter 00-5.
---------------------------------------------------------------------------

    The principle of fundamental competitive parity has been woven by 
Congress and the courts into the very fabric of the dual banking 
system. The dual system was created when Congress created the national 
bank system alongside the state banking system. In the Federal Reserve 
Act, Congress expressly provided for state banks, as well as national 
banks, to be member

[[Page 13421]]

banks. The McFadden Act as passed and as amended in the 1930s embodied 
a federal policy of competitive equality in branching. In the FDI Act, 
deposit insurance was made available to all state and national banks.
    Since 1980, Congress has amended the FDI Act to ensure state-
national bank parity, to ensure a strong and balanced dual banking 
system, and to prevent discriminatory state laws from favoring one type 
of charter over another. In 1980, in response to the challenges 
presented by the 1978 Marquette case, Congress provided interstate 
usury parity for state banks in Section 27 of the FDI Act.\16\ See 12 
U.S.C. 1831d(a). In 1991, Congress addressed state laws providing state 
banks more expansive powers than national banks, a disparity in favor 
of state banks that Congress believed had implications for safety-and-
soundness, bank competitiveness, and the dynamic for change in the dual 
banking system. That enactment provided that state bank activities 
would be limited to activities permissible for national banks, unless 
the FDIC determined that for a state bank to engage in an otherwise 
impermissible activity would not pose a significant risk to the deposit 
insurance fund. See 12 U.S.C. 1831a(a)-(e). This policy of parity was 
continued in Riegle-Neal and the GLB Act.
---------------------------------------------------------------------------

    \16\ See Marquette Nat'l Bank of Minneapolis v. First of Omaha 
Serv. Corp., 439 U.S. 299 (1978).
---------------------------------------------------------------------------

1. The Legislative History of Riegle-Neal Amendments Demonstrates 
Congressional Purpose to Provide Parity Between National Banks and 
State Banks

    In Riegle-Neal, Congress reversed more than 150 years of federal 
policy and enacted comprehensive federal laws governing interstate 
banking for all banks. Except for the applicable law provisions, 
Riegle-Neal as originally enacted gave parallel treatment to state and 
national banks. In 1997, Congress recognized that the original state 
bank applicable law provision was placing state banks at a substantial 
disadvantage and was undermining the state system. It acted swiftly to 
redress the state-national bank balance in Riegle-Neal II. The specific 
drafting approach, the underlying policy and the express purpose of 
that 1997 statute all sought to ensure that state banks would operate 
under a uniform interstate ``applicable law'' regime based on home 
state law parallel to the national bank regime. It sought to ensure 
parity in the dynamic interstate banking environment.
    The legislative history of Riegle-Neal II makes clear that 
Congress' goal was to facilitate competitive equality for state banks 
and national banks in interstate banking. The 1997 amendments 
originated in the House Banking Committee. At final passage, the 
principal sponsor of the bill, Rep. Marge Roukema (R-NJ), chair of the 
Subcommittee on Financial Institutions, and senior members of the House 
Banking Committee, on a bipartisan basis, expressed the intent to 
provide a level playing field, not narrowly in terms of competition 
between state and national bank branches, but broadly in terms of the 
ability of state banks to match national banks in doing business across 
the country.
    As Rep. Roukema stated when introducing the bill for vote on the 
House floor: ``The essence of this legislation is to provide parity 
between state-chartered banks and national banks. * * * This 
legislation is critical to the survival of the dual banking system. * * 
* [A] strong state banking system is necessary for the economic well-
being of the individual States and for innovation in financial 
institutions.'' In her final statement before final passage, she 
repeated the necessity and purpose of the bill: ``[W]e have * * * with 
this action, protected the dual banking system while at the same time 
gaining the advantages of interstate banking.''\17\ No contrary 
statement was made by any House or Senate member during the floor 
debates preceding final passage.
---------------------------------------------------------------------------

    \17\ See 143 Cong. Rec. H3088 (daily ed. May 21, 1997), H4231 
(daily ed. June 24, 1997).
---------------------------------------------------------------------------

    Representative Roukema's statements were echoed and reinforced by 
senior members from each political party. On the Republican side, Rep. 
Mike Castle (R-DEL) addressed state bank's competitive needs ``across 
the Nation'': ``As we enter the age of interstate banking and 
branching, it is necessary to ensure that state banks can compete 
fairly with national banks as more banking is done between States and 
across the Nation. This legislation will ensure that there is a level 
playing field between state and national banks.''\18\ Rep. Doug 
Bereuter (R-NEB) emphasized the benefits for the state system, ``This 
Member was intimately involved in the original Riegle-Neal Act and was 
concerned at that time that States' rights were protected. * * * This 
Member believes that this measure actually reinforces States' rights by 
maintaining the viability of the state charter by ensuring parity with 
the national bank charter * * * [and] urges his colleagues to join him 
in approving this important protection of the dual banking 
system.''\19\
---------------------------------------------------------------------------

    \18\ 143 Cong. Rec. H3095 (daily ed. May 27, 1997).
    \19\ Id. at H3094. Rep. Spencer Bacchus (R-ALA) similarly 
stated: ``* * * we have heard almost unanimous testimony that the 
unfortunate and unintended consequences of our failure to make these 
clarifications will be the devaluation of state banking charters in 
favor of national charters and the gradual decline of the state 
banking system * * *'' Id. at H3095.
---------------------------------------------------------------------------

    A senior Democrat, Rep John LaFalce (D-NY), articulated the purpose 
clearly: ``* * * I do believe [the bill's] passage is vital to maintain 
the dual banking system. It is the dual banking system that by giving 
banks a choice of Federal or state charters has helped to ensure that 
our U.S. banking industry has remained strong and competitive. * * * 
[In 1994, Congress did not adequately anticipate the negative impact 
the interstate law would have on state banks.] Why so? Well, it is due 
to the fact that the national bank regulator has the authority to 
permit national banks to conduct operations in all the states with some 
level of consistency. In contrast, under the existing interstate 
legislation, state banks branching outside their home state must comply 
with a multitude of different state banking laws in each and every 
state in which they operate.''\20\
---------------------------------------------------------------------------

    \20\ Id. at H3094. Rep. Bruce Vento (D-MN) similarly stated: 
``The legislation will maintain the dynamic balance between the 
chartering of national and state banks and banking systems. This is 
a necessary measure. It must be enacted to clarify and ensure the 
viability of America's dual banking system.'' Id. at H3093.
---------------------------------------------------------------------------

    When the Riegle-Neal II bill was considered in the Senate, concern 
also was expressed about the erosion of the dual banking system caused 
by the disparity in applicable law enacted in Riegle-Neal. In his floor 
statement preceding final Senate passage, Senate Banking Committee 
Chairman Alphonse D'Amato (R-NY) stated the importance of Riegle-Neal 
II for the continued vitality of the dual banking system:
    [T]he trigger date for nationwide interstate branching has passed--
June 1, 1997. This important legislation will preserve the benefits of 
the dual banking system and keep the state banking charter competitive 
in an interstate environment. * * *
    The bill is necessary to preserve confidence in a state banking 
charter for banks with such a charter that wish to operate in more than 
one state. In addition, it will curtail incentives for unnecessary 
Federal preemption of State laws. Finally, the bill will restore 
balance to the dual banking system by ensuring that neither charter 
operates at an unfair advantage in this new interstate environment. * * 
*
    New York has more than 90 State [-]chartered banks . * * * Without 
this

[[Page 13422]]

legislation, the largest of these institutions may be tempted to 
convert to a national charter in order to operate in more than one 
State. * * *
    The current law may be unclear as to whether consistent rules are 
used to determine what laws and powers apply to the out-of-state 
branches of state and federally chartered banks. * * * [Summary of the 
bill's terms omitted]
    Enactment of H.R. 1306 also would bolster efforts of New York and 
other states to make sure that State[-]chartered banks have the powers 
they need to compete efficiently and effectively in an interstate 
environment.\21\
---------------------------------------------------------------------------

    \21\ 143 Cong. Rec. S5637 (daily ed. June 12, 1997).
---------------------------------------------------------------------------

2. Section 104 of the GLB Act Reflects Congress' Intent To Preempt 
Discriminatory State Laws Adversely Affecting Any Depository 
Institution

    Congress enacted Section 104 as part of the GLB Act in 1999 to 
address state laws providing competitive inequalities among entities 
offering the same financial products and services. Section 104 
originated as a provision intended to sweep away a variety of state 
laws that had blocked or imposed special requirements or conditions on 
banks seeking to engage in insurance activities permitted under their 
charter law. During the legislative process, the section was expanded 
to provide express preemption of not just state insurance laws, but any 
state law that placed impediments or burdens on any insured depository 
institution seeking to provide financial services across the country. 
Even though the non-insurance provisions of Section 104(d) are far less 
detailed than the insurance provisions of Section 104, the 
Congressional purpose and breadth of preemption with respect to non-
insurance activities are express in the nature and scope of the words 
used.
    Congress determined that in a national financial services 
marketplace individual states should not be able to impose burdens or 
requirements adversely affecting any depository institution, or its 
affiliates. As enacted, Section 104(d) provides broad preemption of 
discriminatory state laws adversely affecting any type of depository 
institution or any affiliate of a depository institution. It was 
enacted for the purpose of ensuring that no insured depository 
institution--including a state bank and its financial affiliates--would 
be disadvantaged competitively by the operation of state law when it 
engages in a financial activity, whether on its own, with an affiliate 
or with ``any other person.''
    The legislative history of Section 104(d), and particularly the 
paragraph (4) nondiscrimination provisions, is sparse, and thus its 
purpose and intent are best drawn from its terms. It is important to 
note that Section 104 addresses how banking organizations conduct the 
full range of permitted financial activities, whether by the depository 
institution itself or by an affiliate, including both ``traditional'' 
affiliates such as mortgage or finance companies and the new 
affiliations permitted under the GLB Act. It focuses on state laws that 
affect how depository institutions or its affiliates engage in any of 
their permitted activities. This focus is evident in the Senate Banking 
Committee report in 1999. That Committee had taken the lead role in 
fashioning Section 104 in the form ultimately enacted. Its report 
expressly addressed the section's broad, preemptive purpose with 
respect to state laws that impinge on how financial activities are 
conducted: ``[T]he Committee is aware that some States have used their 
regulatory authority to discriminate against insured depository 
institutions, their subsidiaries and affiliates. The Committee has no 
desire to have State regulation prevent or otherwise frustrate the 
affiliations and activities authorized or permitted by this bill. Thus, 
Section 104 clarifies the application of State law to the affiliations 
and activities authorized or permitted by the bill (or other Federal 
law), and ensures that applicable State law cannot prevent, 
discriminate against, or otherwise frustrate such affiliations or 
activities.'' \22\
---------------------------------------------------------------------------

    \22\ S. Rept. 106-44 (April 28, 1999) at 11 [Senate Banking 
Committee] (emphasis added).
---------------------------------------------------------------------------

    Section 104(d) has a purpose parallel to Riegle-Neal II--to ensure 
that depository institutions will be able to compete across the country 
on equal terms and to prevent state laws or actions from providing 
disparate treatment that would disadvantage any bank vis-a-vis its 
competitors. When an out-of-state state bank is subject to a state law 
imposing any requirement, limitation, or burden to which a national 
bank or in-state bank is not subject, Section 104(d) by its literal 
terms preempts that state law.

D. In the Requested Rulemaking, the FDIC Should Clarify the Applicable 
Law Governing the Interstate Activities of State Banks To Provide 
Parallel Uniformity for State Banks With National Banks

    In light of the FDIC's authority under its statute and the express 
purposes and policies of Congress enacted in recent statutes, the 
Roundtable believes that the FDIC can, and should, adopt rules so that 
state banks can operate interstate under uniform rules based on home 
state law and thus parallel to national banks. We now address in turn 
the specific parts of the requested rulemaking.

1. The FDIC Should Clarify That in General Home State Law Is the 
Governing Law Applicable to All Activities Conducted in a Host State by 
a State Bank That Has an Interstate Branch in That State to the Same 
Extent That Host State Law Is Preempted by the National Bank Act

    This petition seeks a rule addressing the appropriate applicable 
law to govern the activities of a state bank when it has entered a host 
state with a branch as permitted by Riegle-Neal and thus has a federal 
law authorization to transact all its legally permissible activities 
within that host state. The requested rule would expressly permit a 
state bank to apply home state law uniformly to all its business done 
in a host state parallel to the ability of national banks to apply the 
National Bank Act under OCC rules. Riegle-Neal II plainly provides that 
if the National Bank Act preempts host state law for national banks, 
home state law is the applicable law when the out-of-state bank engages 
in any or all of its permissible activities in or through its host 
state branch. The Riegle-Neal applicable law provisions for both state 
and national banks are silent, however, with respect to the governing 
law applicable to a transaction that the bank could conduct through its 
branch, but is effecting without any involvement by the host state 
branch.
    Riegle-Neal I authorized the bank to engage in any or all of its 
permitted activities in the host state once it has a single branch 
there and to apply its home state law. The only question under Riegle-
Neal II is whether Congress intended different law to apply depending 
on the means used by the bank to conduct its permitted business in the 
host state or the structure of the transaction (that is, whether use of 
home state law as the applicable law depends on some actual branch 
involvement in the bank's transaction).\23\ The legislative purpose is 
clear: Congress was focused on the

[[Page 13423]]

bank's interstate activities, not the means used by the bank. By 
adopting the requested rule, the FDIC will achieve the result Congress 
intended.
---------------------------------------------------------------------------

    \23\ For example, although the statutory text directly addresses 
the law applicable to a Tennessee bank with a branch in Oklahoma 
that makes a loan to an Oklahoma resident through its Oklahoma 
branch (Tennessee law applies), the text does not speak directly to 
the governing law applicable to the identical loan originated by the 
Tennessee bank from its home office in Tennessee (or through an 
operating subsidiary).
---------------------------------------------------------------------------

    The FDIC should fill the statutory gap and clarify the application 
of home state law to host state activities by adopting a rule for state 
banks that provides for uniform application of home state law whenever 
a national bank can apply the National Bank Act. The FDIC rule should 
make it clear that the state bank's home state law will apply to all of 
the bank's activities in a host state whenever a host state law would 
be preempted by OCC rules for a national bank.
    Specifically, the rule should make it plain that any host state 
statute, rule, order, etc., that would be preempted under the terms of 
the OCC preemption rule, or an OCC interpretive letter, would also be 
preempted for a state bank. If there is any uncertainty about the 
application of the OCC rules in any case, the rule might allow the home 
state regulator, or the FDIC, to determine in writing whether OCC rules 
would provide preemption for national banks. The FDIC should reserve 
the ability to make any final determination (with consultation with the 
OCC as needed). In parallel fashion, the rule should provide that if 
home state statute law is silent, the home state regulator can 
determine by rule, order, or interpretative statement/letter what 
applicable home state law is. In general, the home state regulator's 
written determinations, whether by rule, order, or interpretative 
statement/letter, should govern, but could be subject to review by the 
FDIC, upon request of the host state regulator or upon the FDIC's own 
initiative.
    The rule might also address another Riegle-Neal provision 
addressing the home-host state relationship. Section 10(h)(3) of the 
FDI Act expressly provides that the ``State bank supervisors from 2 or 
more States may enter into cooperative agreements to facilitate State 
regulatory supervision of State banks, including cooperative agreements 
relating to the coordination of examinations and joint participation in 
examinations.'' The state regulators, through the Conference of State 
Bank Supervisors, have entered into a landmark nationwide cooperative 
agreement, as well as agreements involving a specific bank by the 
states where that bank has branches. The FDIC rule could provide 
guidance on the effect of Section 10(h)(3).

2. The FDIC Should Clarify That Home State Law is the Governing Law 
Applicable to Activities Conducted by a State Bank in a State in Which 
the State Bank Does Not Have a Branch to the Same Extent That State Law 
Is Preempted by the National Bank Act

    The Roundtable requests that the FDIC adopt parallel rules under 
its Section 9 authority to provide that the home state law of a state 
bank will apply to its activities in other states to the same extent as 
the National Bank Act applies to the activities of national banks. The 
rule should provide that whenever a state law is preempted by the 
National Bank Act or OCC rules, it also would not apply to an out-of-
state insured bank, which would be governed by its home state charter 
law. The requested rule thus would implement the terms and policies of 
Section 104(d) and the policies of Riegle-Neal II and address gaps in 
existing law. Like the parallel OCC rules, the requested rules would 
reduce legal risk, guide legal compliance by insured banks, and aid the 
FDIC in making enforcement decisions under Section 8 of the FDI Act. 
Further, by promoting operating efficiency and competitiveness in 
interstate banking and by reducing the real costs arising from legal 
uncertainty and risk, the proposed rule would contribute to the safe 
and sound operation of state banks.
    To a large extent, the Riegle-Neal and GLB legislation confirmed 
the existence of a robust interstate marketplace for financial services 
and provided a federal legal framework for the conduct of this 
interstate commerce. Although the express purpose of Riegle-Neal II was 
to provide state banks competitive equality with national banks in 
interstate banking, it did not by its terms address the law applicable 
to banks outside states where they maintain a branch. The GLB Act 
addressed the entire financial services marketplace and, like Riegle-
Neal I and II, adopted broad federal rules to implement the goal of a 
``level playing field''. In Section 104(d) Congress plainly recognized 
the need for financial services providers, including insured depository 
institutions, that operate across the country to do so under uniform 
rules and not to be subject to individual state rules or actions that 
would disadvantage some or all depository institutions. Accordingly, 
Congress provided the very broad express preemption stated in Section 
104(d) to address this perceived need.
    As is often the case, Congress did not address in those acts every 
issue presented by the developments and problems it was considering, 
nor did it address future developments. Under established principles of 
administrative law, as discussed above, the federal agencies that 
administer and implement statutory grants of authority have an 
important role in adopting rules that implement Congressional purposes, 
reasonably fill in statutory gaps and address the application of 
existing laws to new developments and contexts.
    The policy of Section 104 has a similar goal as Riegle-Neal II, but 
plainly addresses a different aspect of the same problem--
discriminatory state laws that disadvantage depository institutions, 
including state banks, seeking to compete in interstate financial 
service markets. Section 104(d) thus directly informs and supports this 
requested rule. Under Section 104(d), when state law provides for a 
different result for out-of-state state banks compared to national and 
in-state state banks, that law is preempted. Given Section 104(d) and 
the FDIC's authority to address compliance with law under FDI Act 
Section 8, the FDIC can adopt a rule consistent with the logic and 
policy of Riegle-Neal II that will provide state banks competitive 
equality in every state so that no insured state bank will be required 
to comply with a state law unless a national bank also would be subject 
to that law.
    OCC rules have provided national banks substantial certainty and 
clarity concerning the law governing national bank activities across 
the country.\24\ These OCC actions have had the effect of making 
national banks more competitive and efficient in interstate

[[Page 13424]]

banking and have reduced legal risk. These rules, as supplemented by 
interpretations and guidance issued by the OCC, also have clarified the 
scope of the OCC's compliance and enforcement responsibilities and 
standards with respect to the safe and sound operation of national 
banks. The FDIC has authority to provide a parallel result for state 
banks in its rules.
---------------------------------------------------------------------------

    \24\ The Comptroller has addressed the reality of multistate 
banking by adopting rules that provide that a national bank and its 
operating subsidiaries operate solely under the National Bank Act 
and OCC rules wherever they do business across the country. The OCC 
rules expressly provide that the National Bank Act, not state law, 
governs the deposit, lending, and other activities of national 
banks, except as specifically provided in the OCC rules. See 12 CFR 
7.4007-7.4009. The National Bank Act does not expressly address the 
law applicable to a national bank outside states where it has 
branches. Indeed, prior to the adoption of OCC rules addressing 
these issues in recent years, a number of courts determined that 
national banks were subject to state laws that did not conflict with 
the provisions of the National Bank Act. E.g., National State Bank 
v. Long, 630 F.2d 981 (3d Cir. 1980); Perdue v. Crocker National 
Bank, 702 P.2d 503 (Cal. 1985); Best v. U.S. National Bank, 739 P.2d 
554 (Or. 1987). Nevertheless, the courts including the U.S. Supreme 
Court, have upheld OCC rules and determinations since 1944 that 
flesh out the National Bank Act and spell out the ability of 
national banks and their operating subsidiaries to apply the 
National Bank Act wherever they do business. These OCC 
determinations have generally received Chevron deference. E.g., 
NationsBank of N.C. v. VALIC, 513 U.S. 251 (1995), Barnett Bank of 
Marion County v. Nelson, 517 U.S. 25, 33 (1996), Wachovia Bank, N.A. 
v. Watters, 334 F. Supp. 2d, 957, 963-65 (W.D. Mich. 2004).
---------------------------------------------------------------------------

3. The FDIC Should Clarify That Home State Law Governs the Activities 
of an Operating Subsidiary of a State Bank to the Same Extent as Home 
State Law Applies to the Parent Bank

    In a 1996 rulemaking, which codified existing interpretations, and 
in subsequent modifications, the OCC has adopted comprehensive rules 
concerning the establishment and operation of operating subsidiaries. 
See 12 CFR 5.34; 69 FR 64478 (Nov. 5, 2004). The OCC rules as amended 
in 2001 further specify that state law applies to a national bank 
operating subsidiary to the same extent state law would apply to the 
national bank itself. See 12 CFR 7.4006. The FDIC should similarly make 
clear that an operating subsidiary established by a state bank under 
its home state law, like the operating subsidiary of a national bank, 
will be governed by the same law as would its insured state bank 
parent, except when a state law would apply to the activities of a 
national bank operating subsidiary.
    The Roundtable recognizes that the authority of an insured state 
bank to establish an operating subsidiary must arise under its charter 
law. Whether a state bank can have an ``operating subsidiary'' will be 
determined by appropriate home state authorities under the bank's 
charter law. Nevertheless, the FDIC plainly has authority to determine 
that a state bank operating subsidiary that is treated for all purposes 
as if it were a division of the bank will be subject to the FDI Act and 
FDIC rules in the same way as its insured bank parent, parallel to a 
national bank operating subsidiary. The OCC rules concerning operating 
subsidiaries were adopted without the existence of any express 
provision in the National Bank Act.\25\
---------------------------------------------------------------------------

    \25\ When the authority for a national bank to establish a 
financial subsidiary was authorized under the GLB Act in 1999, new 
Section 24a in the National Bank Act implicitly confirmed the 
existing OCC approach to establishing operating subsidiaries. See 66 
FR 34784, 34788 (July 2, 2001).
---------------------------------------------------------------------------

    The FDIC has discretion under Section 9 and Section 24(f) to 
determine by rule that a subsidiary that is an operating subsidiary 
under home state law will be treated under the FDI Act as if it were a 
division or branch of the state bank.\26\ This rule provision would 
thus allow a state bank operating subsidiary to engage in interstate 
banking activities in host states and other states on the same terms on 
which its state bank parent operates.
---------------------------------------------------------------------------

    \26\ The FDIC has recognized in Advisory Letter 99-5 that a 
state bank operating subsidiary may be treated the same as a state 
bank branch if the operating subsidiary engages in activities that 
would require a branch designation. Advisory Letter 99-5 recognizes 
that because a bank established and controls its operating 
subsidiary, the offices of an operating subsidiary are similarly 
``established'' by the bank for branching purposes. This result is 
also consistent with the terms of Section 1813(o) of the FDI Act, in 
which a ``domestic branch'' is defined to include any ``additional 
office'' of a bank. The FDIC thus has recognized the concept 
underlying the ``operating subsidiary'' and thus can apply it more 
uniformly to all state bank activities by rule.
---------------------------------------------------------------------------

4. The FDIC Should Adopt Rules Construing the Scope and Application of 
Section 104(d) To Make Clear that State Laws, Rules, or Actions Are 
Preempted Under Section 104(d) When They Provide for Disparate 
Treatment Between an Out-of-State National Bank or In-State Bank and an 
Out-of-State State Bank, or an Affiliate Thereof

    The Roundtable also requests that the FDIC provide greater clarity 
and certainty to insured state banks with respect to the scope of the 
federal preemption provided in Section 104(d) of the GLB Act. In view 
of the complexity of Section 104(d) and the general lack of 
understanding of its provisions, FDIC rules are needed. Moreover, a 
rulemaking is a preferable means for providing needed clarity than 
either litigation or an enforcement proceeding.
    Section 104(d) provides express federal preemption of certain state 
laws that affect ``insured depository institutions'', as defined in the 
FDI Act. Insured state banks subject to FDIC regulation are the 
intended beneficiaries of the Section 104(d) preemption. Yet state 
banks today are not utilizing this preemption, because the statute is 
relatively new and complex and the relevant provisions have not been 
construed by any agency or court. Given the complexity of the Section 
104(d) provisions, FDIC guidance would provide much needed clarity and 
certainty. Accordingly, we request the FDIC to exercise its authority 
under FDI Act Sections 8 and 9 to adopt rules that specify the scope of 
the express preemption provided under Section 104(d) for insured state 
banks. Alternatively, the FDIC might adopt a statement of policy 
addressing the scope and effect of Section 104(d) for state banks.
    The breadth of the Section 104(d) preemption and its purpose to 
reach state law or actions that would provide disparate treatment for 
any type of depository institution, including the distinct class of 
out-of-state state banks, vis-[agrave]-vis its competitors are evident 
in the language of the statute. Section 104(d)(4)(D) provides four 
distinct nondiscrimination tests for any state law or action that 
``restricts'' any depository institution or any affiliate.\27\ These 
provisions of Section 104 were carefully drafted and the text 
demonstrates that Congress made careful distinctions when determining 
whether state discrimination between competitors should be 
impermissible, and thus and preempted, under federal law.\28\ The 
distinctions in the statutory

[[Page 13425]]

language permit the FDIC to address the meaning of Section 104(d) for a 
state bank confronting state laws outside its home state that 
disadvantage it by putting it in a different legal or competitive 
position than its national bank or in-state state bank competitors.
---------------------------------------------------------------------------

    \27\ The pertinent portions of Section 104(d) are as follows:
    (d) Activities.
    (1) In general. Except as provided in paragraph (3), and except 
with respect to insurance sales, solicitation, and cross marketing 
activities, which shall be governed by paragraph (2), no State may, 
by statute, regulation, order, interpretation, or other action, 
prevent or restrict a depository institution or an affiliate thereof 
from engaging directly or indirectly, either by itself or in 
conjunction with an affiliate, or any other person, in any activity 
authorized or permitted under this Act and the amendments made by 
this Act. * * *
    (4) Financial activities other than insurance. No State statute, 
regulation, order, interpretation, or other action shall be 
preempted under paragraph (1) to the extent that--
    (A) It does not relate to, and is not issued and adopted, or 
enacted for the purpose of regulating, directly or indirectly, 
insurance sales, solicitations, or cross marketing activities 
covered under paragraph (2);
    (B) It does not relate to, and is not issued and adopted, or 
enacted for the purpose of regulating, directly or indirectly, the 
business of insurance activities other than sales, solicitations, or 
cross marketing activities, covered under paragraph (3);
    (C) It does not relate to securities investigations or 
enforcement actions referred to in subsection (f); and
    (D) it--
    (i) Does not distinguish by its terms between depository 
institutions, and affiliates thereof, engaged in the activity at 
issue and other persons engaged in the same activity in a manner 
that is in any way adverse with respect to the conduct of the 
activity by any such depository institution or affiliate engaged in 
the activity at issue;
    (ii) As interpreted or applied, does not have, and will not 
have, an impact on depository institutions, or affiliates thereof, 
engaged in the activity at issue, or any person who has an 
association with any such depository institution or affiliate, that 
is substantially more adverse than its impact on other persons 
engaged in the same activity that are not depository institutions or 
affiliates thereof, or persons who do not have an association with 
any such depository institution or affiliate;
    (iii) Does not effectively prevent a depository institution or 
affiliate thereof from engaging in activities authorized or 
permitted by this Act or any other provision of Federal law; and
    (iv) Does not conflict with the intent of this Act generally to 
permit affiliations that are authorized or permitted by Federal law. 
15 U.S.C. 6701(d).
    \28\ Compare the ``other person'' language in subparagraphs (i) 
and (ii). Subparagraph (i) addresses ``other persons engaged in the 
same activity'', while Subparagraph (ii) addresses ``other persons 
engaged in the same activity that are not depository institutions or 
affiliates thereof.''
---------------------------------------------------------------------------

    The following specific items might be covered in an FDIC rule or 
statement of policy:
     The rule should state that the Section 104(d) preemption 
applies to insured banks, and to their subsidiaries, affiliates and 
associated persons.
     The rule should define a ``person'' to include a 
depository institution, subsidiary, affiliate, and associated person.
     The rule should state that in view of the breadth of the 
nondiscrimination requirements stated in Section 104(d) the word 
``restrict'' in Section 104(d)(1) is to be read broadly to include any 
state law, rule, interpretation or action that calls for any limitation 
or requirement. Any state law that ``restricts'' but is 
nondiscriminatory under Section 104(d)(4) is not preempted under 
Section 104(d). By the same token, any state law that ``restricts'' and 
is discriminatory under Section 104(d)(4) is preempted under Section 
104(d).
     The rule should address each of the four nondiscrimination 
provisions in Section 104(d)(4) to confirm that each is a distinct test 
and that any state law or action that fails any one test is preempted.
     The rule should address the scope of ``actions'' in 
Section 104(d)(4) to include all types of formal or informal 
administrative actions by any state or local governmental entity, 
including decisions with respect to civil enforcement of state rules.
     The rule should address Section 104(d)(4)(D)(i) in light 
of the terms used in subparagraph (ii) to specify that subparagraph (i) 
addresses treatment under state law of an out-of-state insured state 
bank, which is plainly an ``insured depository institution,'' that is 
different from the treatment of any national bank or in-state state 
bank and banks, which is an ``other person engaged in the same 
activity'' under these provisions. It should also specify that this 
discrimination can take various forms, including state laws, rules, or 
``actions'' that treat out-of-state state banks or their subsidiaries 
differently from in-state or federal institutions, whether expressly 
(e.g., through a state law exemption for federal institutions, but not 
out-of-state state banks insured institutions), by operation of law 
(e.g., when state law is preempted for national banks or federal 
thrifts, and federal credit unions, but not for out-of-state state 
banks), or by an administrative determination to enforce a state rule 
against an out-of-state state bank or affiliate, but not against a 
federal entity. The rule could give examples.
     The rule should define ``state law'' to include laws, 
ordinances, rules, etc. of political subdivisions (including any 
county, municipality, etc.).

5. The FDIC Should Implement Section 27 of the FDI Act by Adopting a 
Rule Parallel to the Rules Promulgated by the OCC and OTS

    The scope and implementation of the express preemption for the 
``interest rate'' charged in interstate lending transactions by state 
and national banks under Section 27 of the FDI Act and Section 85 of 
the National Bank Act have been authoritatively addressed by the courts 
\29\ and in agency interpretations.\30\ Nevertheless, both the OCC and 
OTS have adopted rules codifying the scope of the respective statutory 
provisions. We request that the FDIC adopt parallel provisions by rule 
so that state banks will operate in a matching legal framework under 
these parallel statutes.
---------------------------------------------------------------------------

    \29\ Greenwood Trust Co. v. Mass., 971 F.2d 818 (1st Cir. 1992), 
Smiley v. Citibank, 517 U.S. 735 (1996).
    \30\ See FDIC General Counsel Opinions 10 and 11.
---------------------------------------------------------------------------

* * * * *
    The Roundtable appreciates the FDIC's consideration of this 
petition. We recognize that it is very broad and asks the FDIC to 
undertake a major rulemaking. We believe that such an effort is 
urgently needed to preserve a strong dual banking system, to maintain 
safety and soundness, and to ensure that it is attractive to both large 
and small banks. Such a system is an integral, essential part of the 
framework for banking in the United States. While we strongly support 
the development of interstate banking and federal preemption over the 
last decade, we believe that the modernization of American banking 
requires a parallel modernization of the state half of the dual banking 
system. Since the issues concern interstate business and preemption, 
the needed actions must come at the federal level. As discussed above, 
we believe that Congress has given the FDIC both the tools and 
responsibility to address these needs.
    The Roundtable and its members stand ready to work with the FDIC 
and its staff to achieve these important objectives. If you have any 
further questions or comments, please do not hesitate to contact me or 
John Beccia at (202) 289-4322.

     Sincerely,

Richard M. Whiting,
Executive Director and General Counsel.

cc: Chairman Donald E. Powell, William F. Kroener III, Esq.

[FR Doc. 05-5499 Filed 3-18-05; 8:45]
BILLING CODE 6714-01-P