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State Courts and the Presumption Against Banking Preemption

This Note contributes an analysis of recent banking preemption decisions in federal and state courts paying particular attention to the deployment of the presumption against preemption. Given the little-discussed role of state courts in the interpretation of federal statutes, this Note provides explanations and a theoretical framework for the apparent differences between state and federal court preemption determinations. From an institutional competence and federalism-enhancing viewpoint, state court judges may be the only institutional actor capable of voicing the unique state regulatory interests at stake in preemption determinations. It is therefore not surprising that they adopt the presumption against preemption more often – and in stronger terms – than their federal counterparts. This Note first makes a policy argument for the dual banking system by highlighting the problems of regulatory arbitrage and agency capture, as recently observed during the financial crisis of 2008. I then address the salient differences between banking and other federally regulated industries also subject to preemption, arguing that the presumption against preemption is particularly apt in the banking context. Next, this Note analyzes the academic literature surrounding the presumption against preemption. I argue that the presumption is best justified as a bulwark against federal intrusion into state regulatory autonomy, particularly state common law – an interest that only a few, relatively powerless interest groups advocate for at the national level. The disjunction between state and federal court approaches to banking preemption yields the troubling result that parties may come to expect different outcomes in different venues, thereby increasing pressure for the federalization and harmonization of preemption determinations. Nevertheless, it is precisely federalism and regulatory variety that is at stake in preemption litigation.