US bank regulator warns against 'worrisome' state laws targeting banks

By Pete Schroeder

WASHINGTON (Reuters) - A top U.S. bank regulator warned on Wednesday the agency may begin pushing back against the "worrisome trend" of states adopting laws meant to police national bank activities on political grounds.

Michael Hsu, head of the Office of the Comptroller of the Currency (OCC), said in a speech that such measures are pushing "greater fragmentation" of the financial system, and the OCC may begin challenging those measures.

"Increasingly, banks are being asked by states to pick a side in service of performative politics rather than deliberative policy. The OCC is a bulwark against this. Just as the advent of national banking was able to help unify a fragmented banking system in the late 1800s, it can help ensure that parochial overreach today does not splinter our banking system," he said, according to prepared remarks provided by the agency.

Numerous states have considered or passed legislation aimed at policing bank policies considered discriminatory on largely political grounds. Many of those measures have advanced in Republican-led states like Texas, which has enacted laws prohibiting banks from doing business with the state if they are deemed to discriminate against certain industries like fossil fuels or firearms.

Recently, Florida and Tennessee passed new laws that prohibited federally-chartered banks from denying services to anyone on the basis of their political or religious beliefs, and allowing the state to investigate any discriminatory claims. Banks have long maintained that they do not discriminate against particular industries or political beliefs.

Hsu said the OCC plans to "fortify and vigorously defend" federal preemption of state laws that are deemed to interfere with national bank operations and regulation, without naming specific states or laws. He said that preemption authority is "central" to the nation's banking system and has allowed it to thrive.

He added that safety and soundness of national banks, including compliance with federal laws and regulations, is "legally absolute and non-negotiable, and the OCC will act accordingly to defend that."

(Reporting by Pete Schroeder; Editing by Nick Zieminski)