Sheppard Mullin Financial Institutions Law Blog

Question:        Section 484(a) of the National Bank Act provides that, "[n]o National Bank shall be subject to any visitorial powers except as authorized by Federal law."  Does this statute, which preempts state laws of general application that conflict with the letter or purposes of the NBA, also apply to operating subsidiaries of National Banks?

Answer:          Yes, According to the United States Supreme Court in Watters, Commissioner v. Wachovia Bank, N.A., No. 05-1342 (April 17, 2007).

This case resolved the issue of whether Michigan's real estate mortgage lending regulations, which would be preempted  if applied to national banks themselves, could nonetheless be applied to a mortgage lending subsidiary of a national bank (Wachovia Bank, N.A.).  Writing for the Court, Justice Ginsberg noted that the NBA "specifically authorizes federally chartered banks to engage in real estate lending" and that Wachovia's real estate business, if conducted by the national bank itself, "would be subject to OCC's superintendence, to the exclusion of state registration requirements."

Holding that the NBA's "[s]ecurity against significant interference by state regulators is a characteristic condition of the 'business of banking' conducted by national banks, and mortgage lending is one aspect of that business," the Court concluded, in a 5-3 opinion (Justice Thomas not participating) that such security "should adhere whether the business is conducted by the bank itself or is assigned to an operating subsidiary licensed by OCC…."

An electronic copy of the Opinion is attached.