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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.