#preemption

Karen Petrou: How to Craft Federal Preemption Policy

Shane Smith2024-08-05T09:12:59-04:00August 5th, 2024|The Vault|

In a recent interview, Zach Warmbrodt of Politico asked me the best big-picture question when it comes to federal preemption: are banks now so petrified of state anti-ESG mandates that a federal law laying out with whom banks may do business is desirable? Banks don’t want anyone telling them how to run their businesses, but workable federal rules are, so the thinking goes, better than high-risk state standards such as Florida’s new requirements. Fears are heightened by the OCC’s hesitancy when it comes to preempting Florida, but the agency is now contending with new restrictions thanks to recent Supreme Court rulings and federal preemption still wouldn’t solve the state-bank predicament. A federal bill might clear these legal issues away, but a sound bill would still have to reckon with complex policy decisions no prior effort to draft preemption bills has conquered.

Indeed, legislative and regulatory efforts to date have been far more ideological than operational. The ESG battles first broke into open warfare during the Obama Administration when the banking agencies issued warnings about lending to payday companies, firearms-related businesses, and a couple of other targets. This campaign came to be known as Operation Chokepoint and, even though all of the agencies quickly backed away, it lives on – see Donald Trump’s promise to end “chokepoint 2.0.”

Things heated up again late in the last decade after BlackRock issued a pro-climate edict when it came to casting its proxies and a few big banks curtailed lending to firearms manufacturers and …

Karen Petrou: The Problem With Preemption

Eliza Allen2024-07-15T10:20:49-04:00July 15th, 2024|The Vault|

Last week, I wrote about the populist and progressive tie that binds each side of the U.S. political spectrum, pointing in particular to how the left and right are each calling for an end to “financial censorship.” MAGA Republicans in Florida have taken the lead here for populists with new legislation barring banks from closing accounts based on pretty much anything but the fact that the account holder took out all the money and maybe not even then. As FedFin subsequently described, Members of the House Financial Services Committee called first on Secretary Yellen and then on Chair Powell to declare that federal law preempts the state statute, noting that the Florida law bars banks from closing accounts even when money laundering is feared, imperiling law enforcement and financial integrity. Secretary Yellen called for preemption, although it’s hers only to urge, not to grant. Mr. Powell was more circumspect, but he surely supports preemption. But, this is also not for the Fed to declare; the power of preemption indeed rests with only the Office of the Comptroller of the Currency. So far, it’s done nothing and the nothing it’s done points to the consequences of one of the quieter decisions in this year’s tumultuous Supreme Court term and the threat this poses to the national-bank charter.

As you well know, almost all the attention on the Supreme Court that isn’t glued to Donald Trump targeted two end-of-session decisions revoking Chevron and extending ad infinitum the statute of limitations for regulatory …