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Columbia-Commissioned Report Shows Damage Done by Lifting of Bank Regulations

The conclusions of a report commissioned by Columbia Law School’s National State Attorneys General Program (NSAGP) and released this fall lends yet more agency to a recent and controversial decision by the House Financial Services Committee to make national banks subject to state banking regulations.

The study, conducted by the UNC Center for Community Capital, found the U.S. Comptroller of the Currency’s (OCC) 2004 decision to exempt national banks from state anti-predatory laws substantially increased lending to risky customers.  Economists and government officials cite reckless mortgage lending as a significant—if not the chief—factor in triggering the global financial collapse. 

Last summer, the U.S. Supreme Court reversed the decision in Cuomo v. Clearinghouse, which held that states could not regulate and enforce the activities of national banks.  Congress is now deciding the extent to which national banks will be subject to state regulation.  The House Committee settled on compromise language in which national banks must adhere to state regulations as long as those regulations do not “significantly interfere” with a bank’s ability to operate.

The NSAGP-funded report also showed that after the federal government lifted lending restrictions, the origination of subprime mortgages by national banks in states with the strictest anti-predatory laws—now an attractive market for risky loans—jumped from nine to 20 percent.  Overall, borrowers in states with anti-predatory laws—which still constrained the lending of state banks—have fared better during the recent wave of foreclosures than states with no or weak anti-predatory laws. 
 
The UNC Center for Community Capital conducts research to help policymakers, advocates and the private sector find ways to expand economic opportunity. The full report is available at www.ccc.unc.edu.

The NSAGP is a legal research and education-and-policy center that examines the implications of the jurisprudence of state attorneys general. Under the leadership of James E. Tierney, former attorney general of Maine, and Ellen Chapnick, dean of Social Justice Initiatives, the program works closely with attorneys general, academics, and other members of the legal community in disseminating information used by state prosecutors to carry out their civil and criminal responsibilities.