Supreme Court Ruling Gets Mixed Reviews

WASHINGTON, DC-Watters v. Wachovia doesn’t have the emotional appeal of Kelo v. City of New London , a Supreme Court ruling that gave states greater powers of eminent domain or the financial stakes of DaimlerChrysler v. Cuno , a ruling that ultimately backed states’ ability to grant investment tax credits; but this latest real estate related Supreme Court ruling is having a similar divisive effect.

In Watters v Wachovia, the Supreme Court ruled that states do not have the right to regulate state-chartered affiliates of nationally chartered banks. Wachovia Corp. challenged this notion when it moved a subsidiary, Wachovia Mortgage, from its direct control to that of Wachovia Bank, a federally chartered national bank. That status, it argued, and the fact that it is now regulated by the federal Office of the Comptroller of the Currency, exempted it from state regulation. The Supreme Court agreed.

Writing for the majority, Justice Ruth Bader Ginsburg said, the National Bank Act “specifically authorizes federally chartered banks to engage in real estate lending. It also provides that banks shall have power ‘[t]o exercise…all such incidental powers as shall be necessary to carry on the business of banking.’ Among incidental powers, national banks may conduct certain activities through ‘operating subsidiaries,’ discrete entities authorized to engage solely in activities the bank itself could undertake, and subject to the same terms and conditions as those applicable to the bank.”