U.S. Supreme Court rules bank subsidiaries are immune.

Byline: David Ziemer

The National Bank Act (NBA) preempts state regulation of subsidiaries of national banks, the U.S. Supreme Court held on April 17. The NBA authorizes federally chartered banks to engage in real estate lending. It also provides that banks shall have power to exercise all incidental powers necessary to carry on the business of banking. Among the incidental powers is authority to conduct activities through subsidiaries. Wachovia Bank, a national bank, conducts its real estate lending business through a state-chartered subsidiary. The State of Michigan advised the subsidiary that it could no longer conduct mortgage lending activities in Michigan, after it refused to comply with Michigan's registration and inspection requirements. Wachovia sued in federal court, arguing that Michigan's regulations were preempted by the NBA. The district court granted summary judgment in favor of Wachovia, and the Sixth Circuit affirmed. 431 F.3d 556 (6th Cir. 2005). The Supreme Court granted review, and also affirmed, in a decision by Justice Ruth Bader Ginsburg. Justice John Paul Stevens dissented, in an opinion joined by Chief Justice John Roberts and Justice Antonin Scalia. Justice Clarence H. Thomas did not participate. The U.S. Code, 12 U.S.C. 24a(g)(3)(A), provides that national banks can engage in mortgage lending through subsidiaries "subject to the same terms and conditions that govern the conduct of such activities by national banks." 12 CFR 7.4006 (2006), promulgated by the Office of the Comptroller of the Currency (OCC) provides, "Unless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank." It was undisputed that the parent national bank would be exempt from the State's regulations. Michigan argued that the OCC regulation is not entitled to any deference, but the court declined to address the proper level of deference to accord it, concluding that the regulation merely confirms what the statute already conveys -- that state law cannot impede a national bank's powers to operate through a subsidiary, subject to the same terms that govern the bank itself. Accordingly, the court affirmed. The Dissent Justice Stevens dissented, concluding that the statute does not immunize national bank subsidiaries from state regulation, nor does it authorize the OCC to do so. The dissent traced the history of the NBA, going...