Supreme Court gives states a victory in dispute with big banks and their captured federal regulator

Reported today at MarketWatch: Banks face state fair-lending laws: Supreme Court

AS A POLITICAL MATTER. it is certainly true that the Office of the Comptroller of the Currency, (OCC), has been a toothless tiger in exercising its regulation of nationally chartered banks. This contributed to extensive granting of high cost mortgages to weak borrowers and, perhaps critically, to the housing bubble, (although I continue to believe that if the bubble had been prevented in housing excessive credit and deficient saving would have produced a bubble and catastrophic collapse anyhow elsewhere in the economy).

AS A MATTER OF LAW, say critics of the decision, the Court is reversing a settled grant of federal authority over nationally chartered banks dating from the 1864 National Bank Act but, in fact, the dispute was over a 2004 OCC policy change designed to hamstring the State's recognized authority to enforce their consumer protection laws as they apply to consumer and mortgage lending. The states saw it coming as shown by this 2003 letter to the OCC from the National Governors Association Economic Development and Commerce Committee.

That the swing vote in the 5-4 decision came from Justice Scalia who defected from his conservative faction is being much commented upon. This would not really be remarkable from a state's rights, anti-big federal government, traditional conservative but is surprising in an era of neocon ascendancy over the paleocons. While not as central to neoconservatism as their militaristic foreign policy, general aggrandizement of federal authority in the executive branch has been a useful component of neocon political strategy. It was helpful to large corporate allies, including big banks, that could benefit from American international hegemony exercised in their favor. Perhaps Justice Scalia is more traditional than has been thus far perceived.