Banking Law

In what may be great examples of Supreme Court Justices playing head games with advocates, in today's oral arguments over the OCC preemption case we discussed yeasterday, Justice Ginsburg seemed to question the OCC's position and Chief Justice Roberts seemed to support the OCC. If they each continue down those respective paths, they'll end up 180 degrees from where they were two years ago in Watters v. Wachovia, when Ginsburg wrote the majority opinion upholding federal preemption and Roberts led the dissent.

The lawyer representing Cuomo, New York Solicitor General Barbara Underwood, argued that states must be able to enforce their fair-lending and other consumer-protection laws. The OCC's position "detaches the state's power to make laws from its power to enforce them," Underwood said.

Justice Ruth Bader Ginsburg returned several times to that idea, challenging the lawyers representing the US and the banks to come up with other instances where states had the right to "prescribe, but not enforce" laws.

"The state law, as this picture is drawn for us, is applicable," Ginsburg said. "It's substantive law applicable to these banks, but only the federal authority can enforce it. That seems passing strange."



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The current case bears some resemblance to a dispute resolved by the Supreme Court in 2007 in favor of the banking industry. The court ruled 5-3 that states can't regulate the mortgage-lending subsidiaries of banks supervised by the OCC.

While the 2007 case involved traditional banking regulation, including licensing and so-called visitorial powers, the latest fight concerns more general state rules, such as anti-discrimination and consumer-protection laws.

The lawyer for the Clearing House, Seth Waxman, cited the case in arguing against state enforcement.

Ginsburg, who wrote for the majority in that case, said Waxman was offering "an inaccurate description" of the decision and cautioned him against relying on it to make his point today because the issues were different. "I do not think that excerpts of that opinion should be taken out of that context," she told Waxman.

Several justices questioned Congress's intent in drafting the laws that govern banks and federal regulation. Chief Justice John Roberts, who dissented in the 2007 case, said there was a reason for Congress's concern about states targeting national banks because it had happened in the past.

"Why isn't it a complete answer, to what I agree is a somewhat unusual situation of preempting enforcement but not the substance of law, that it's enforcement that raises the concerns?" Roberts asked. "Why doesn't that make perfect sense?"

Personally, I wouldn't get too excited about this banter. Often, it merely masks what the ultimate decision of each jurist will be. For most of us, hitting the blackjack tables in Las Vegas gives us better odds. Still, it gives us something to do in our down time.

As usual, Antonin Scalia got in the biggest zinger.

"What incentive does the federal government have to enforce state law?" asked Justice Antonin Scalia. "It has so much spare time after enforcing federal law that it's going to be worrying about state law?"

Now, that's one "Supreme" whose vote, along with his quota of snark,  you can always count on.

Elsewhere, Big Bucks investor Wilbur Ross announced that private funds he controls and money manager Invesco Ltd. would be participating in the PPIP.

"At this stage, you don't know where the most attractive opportunities will be. We just know they're going to be big," Ross told Reuters.

Recently, Henry Kravis stated publicly that he'll pass on particpating, due to fear of the government changing the deal after the investment has been made, as it's done already. Ross, on the other hand, is willing to take that risk.

Ross played down fears that big investment gains could be clawed back later by the U.S. Congress for political reasons.

"If that's the case, I'll be the victim and not our investors. It's a risk we've decided to take. We're relying on the good faith of the Treasury," he said.

"Relying on the good faith of the Treasury." It's hard to believe a billionaire said that, isn't it? He definitely either knows something we don't (which is extremely likely) or he's a true believer. No guts, no glory, I suppose. On the other hand, what a leap of faith!