Exorcising McCulloch: The Conflict-Ridden History of American Banking Nationalism and Dodd-Frank Preemption
Conventional wisdom holds that federal laws conferring banking powers on national banks presumptively preempt state laws seeking to control the exercise of those powers. This conventional wisdom originates with McCulloch v. Maryland, which established that nationally chartered banks are federal instrumentalities entitled to regulate themselves free from state law—even when national law fails to address the risks that state law seeks to regulate. Incorporated into the National Bank Act of 1864 by nineteenth-century precedents but then abandoned by the New Deal Court, McCulloch’s theory of preemption is being revived today by the Office of the Comptroller of the Currency (OCC) to preempt broad swaths of state law.
This Article maintains that it is time to exorcise McCulloch’s theory from our preemption jurisprudence. Far from historically sanctioned, McCulloch’s theory that national banks are federal instrumentalities offends a deeply rooted tradition in American political culture and law that I call the “anti-banker nondelegation doctrine.” This principle has been manifest in campaigns against national banks’ immunities from political oversight, ranging from Andrew Jackson’s 1832 veto of the charter of the Second Bank of the United States to Louis Brandeis’s 1912 campaign against the “House of Morgan” as a “financial oligarchy.” In contrast to McCulloch’s view of banks as impartial instruments of the federal government, the American political system and the post–New Deal federal courts have adopted the view that federal law should not delegate unsupervised power to private banks to regulate their own operations. Accordingly, if federal regulators displace state laws regulating banking practices, then those federal regulators must explain how federal law addresses the risks that those state laws were attempting to control.
The most recent effort to eliminate McCulloch’s theory of preemption is section 1044(a) of the Dodd-Frank Act. Section 1044(a) provides detailed standards governing the OCC’s power to preempt state law. This Article argues that the OCC’s 2011 rules mistakenly revive McCulloch’s theory of preemption. This revival contradicts not only section 1044(a); it also contravenes the general tradition of distrusting grants to national banks of immunity from state law. Like McCulloch, the OCC’s rules draw irrational distinctions between states’ general common law doctrines and states’ rules specifically directed toward banking practices, and subject the latter to a sort of field preemption. This Article contends that such preemption is unprincipled and mistaken. Instead, it urges courts to follow the ordinary principles of conflict preemption—that is, to find state law preempted only where the OCC has specifically approved the banking practice forbidden by state law.