Wachovia Wins Closely Watched Lending Case; States Cannot Regulate National Bank Units

In a closely-watched U.S. case addressing federal-state relations, a federal appeals court ruled that state banking officials cannot regulate the operating units of national banks.

The 31-page decision on Monday by the U.S. Court of Appeals for the Second Circuit is a victory for Wachovia Corp., which had sued Connecticut Banking Commissioner John Burke. It will also benefit other national banks such as Citigroup Inc., Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co.

The decision is a defeat for the dozens of state bank commissioners and attorneys general, including Connecticut’s Richard Blumenthal and New York’s Eliot Spitzer, who are trying to crack down on potential abuses in lending.

Those regulators supported Connecticut’s attempt to enforce tougher state rules rather than to have to apply more lenient federal rules, such as the National Bank Act and regulations issued by the Office of the Comptroller of the Currency.

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