Who’s Watching Your Money?

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http://www.nytimes.com/2007/04/30/opinion/30morgenthau.html?_r=2&oref=slogin&oref=slogin

Who’s Watching Your Money?


By ROBERT M. MORGENTHAU
Published: April 30, 2007

IN a ruling this month, the United States Supreme Court upheld an ill-advised regulation issued by the Office of the Comptroller of the Currency that exempted subsidiaries of national banks from regulation by state banking authorities. This regulation makes the comptroller the exclusive regulator of these banks, even though the office is financed almost entirely by the banks it oversees.

In the case, Watters v. Wachovia Bank, the court held that the National Bank Act barred Michigan’s bank regulator from overseeing the activities of the mortgage-lending subsidiary of Wachovia, a national bank, even though the subsidiary itself was a state-chartered institution. The court thus rejected the arguments of the attorneys general and bank regulators in all 50 states.

With the collapse of the subprime mortgage business front-page news, one might have hoped for more effective bank regulation. Instead, the hands of state banking regulators have been tied when it comes to predatory mortgage lending by national banks.

This ruling, which will no doubt have implications for state regulation of car loans and other areas of consumer finance, dealt a heavy blow to the system of dual federal and state authority over national banks that has served this country well for nearly 150 years. Banks now have an added incentive to opt out of state systems and put themselves under the protection of the comptroller.

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