The Federal Deposit Insurance Corporation issued a notice of proposed rule making in response to a petition requesting a rule preempting certain state laws as to FDIC-insured state chartered banks in order to establish parity with national banks.

    The FDIC held public hearings in May of 2005 at which written and oral statements were given in response to the petition. Those in favor of an FDIC preemption rule discussed the need for parity in order for state banks to remain competitive, while those opposed to a preemption rule focused on state consumer protection laws. The two sides also disagreed over the FDIC’s authority to issue such a rule.

    The FDIC concluded that it has authority to issue a preemption rule under 12 U.S.C. § 1819(a) and 12 U.S.C. § 1820(g). In the explanation for the rule, the FDIC focused on Section 24(j), giving state banks full parity with respect to interstate branching, and Section 27, preventing discrimination against insured state banks with regard to interest rates.

    The proposed rule places state banks on par with national banks by providing that “host state” law does not apply to activity conducted at a branch in a host state of an out-of-state state bank to the same extent that “host state” law does not apply to activity conducted at a branch in the host state of an out-of-state national bank.

    The proposed rule also contains a provision regarding interest rates that includes a definition of “interest” and explanation like that found in Section 7.4001 applicable to national banks. Several provisions address location.

    The FDIC has requested that comments be submitted on the proposed rule within 60 days of publication of the proposed rule in the Federal Register.

    Elizabeth Anstaett and Mike Tomkies