Watters v. Wachovia Bank, N. A.

(Slip Opinion) OCTOBER TERM, 2006 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is

being done in connection with this case, at the time the opinion is issued.

The syllabus constitutes no part of the opinion of the Court but has been

prepared by the Reporter of Decisions for the convenience of the reader.

See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

WATTERS, COMMISSIONER, MICHIGAN OFFICE

OF INSURANCE AND FINANCIAL SERVICES

v. WACHOVIA BANK, N. A., ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SIXTH CIRCUIT

No. 05–1342. Argued November 29, 2006—Decided April 17, 2007

National banks’ business activities are controlled by the National Bank

Act (NBA), 12 U. S. C. §1 et seq., and regulations promulgated there

under by the Office of the Comptroller of the Currency (OCC), see

§§24, 93a, 371(a). OCC is charged with supervision of the NBA and,

thus, oversees the banks’ operations and interactions with customers.

See NationsBank of N. C., N. A. v. Variable Annuity Life Ins. Co., 513

U. S. 251, 254, 256. The NBA grants OCC, as part of its supervisory

authority, visitorial powers to audit the banks’ books and records,

largely to the exclusion of other state or federal entities. See §484(a);

12 CFR §7.4000. The NBA specifically authorizes federally chartered

banks to engage in real estate lending, 12 U. S. C. §371, and “[t]o ex

ercise . . . such incidental powers as shall be necessary to carry on the

business of banking,” §24 Seventh. Among incidental powers, na

tional banks may conduct certain activities through “operating sub

sidiaries,” discrete entities authorized to engage solely in activities

the bank itself could undertake, and subject to the same terms and

conditions as the bank. See §24a(g)(3)(A); 12 CFR §5.34(e).

Respondent Wachovia Bank is an OCC-chartered national banking

association that conducts its real estate lending business through re

spondent Wachovia Mortgage Corporation, a wholly owned, North

Carolina-chartered entity licensed as an operating subsidiary by

OCC, and doing business in Michigan and elsewhere. Michigan law

exempts banks, both national and state, from state mortgage lending

regulation, but requires their subsidiaries to register with the State’s

Office of Insurance and Financial Services (OIFS) and submit to state

supervision. Although Wachovia Mortgage initially complied with

2 WATTERS v. WACHOVIA BANK, N. A.

Syllabus

Michigan’s requirements, it surrendered its Michigan registration

once it became a wholly owned operating subsidiary of Wachovia

Bank. Subsequently, petitioner Watters, the OIFS Commissioner,

advised Wachovia Mortgage it would no longer be authorized to en

gage in mortgage lending in Michigan. Respondents sued for de

claratory and injunctive relief, contending that the NBA and OCC’s

regulations preempt application of the relevant Michigan mortgage

lending laws to a national bank’s operating subsidiary. Watters re

sponded that, because Wachovia Mortgage was not itself a national

bank, the challenged Michigan laws were applicable and were not

preempted. She also argued that the Tenth Amendment to the U. S.

Constitution prohibits OCC’s exclusive regulation and supervision of

national banks’ lending activities conducted through operating sub

sidiaries. Rejecting those arguments, the Federal District Court

granted the Wachovia plaintiffs summary judgment in relevant part,

and the Sixth Circuit affirmed.

Held:

1. Wachovia’s mortgage business, whether conducted by the bank

itself or through the bank’s operating subsidiary, is subject to OCC’s

superintendence, and not to the licensing, reporting, and visitorial

regimes of the several States in which the subsidiary operates.

Pp. 5–17.

(a) The NBA vests in nationally chartered banks enumerated

powers and all “necessary” incidental powers. 12 U. S. C. §24 Sev

enth. To prevent inconsistent or intrusive state regulation, the NBA

provides that “[n]o national bank shall be subject to any visitorial

powers except as authorized by Federal law . . . .” §484(a). Federally

chartered banks are subject to state laws of general application in

their daily business to the extent such laws do not conflict with the

letter or purposes of the NBA. But when state prescriptions signifi

cantly impair the exercise of authority, enumerated or incidental un

der the NBA, the State’s regulations must give way. E.g., Barnett

Bank of Marion Cty., N. A. v. Nelson, 517 U. S. 25, 32–34. The NBA

expressly authorizes national banks to engage in mortgage lending,

subject to OCC regulation, §371(a). State law may not significantly

burden a bank’s exercise of that power, see, e.g., Barnett Bank, 517

U. S., at 33–34. In particular, real estate lending, when conducted by

a national bank, is immune from state visitorial control: The NBA

specifically vests exclusive authority to examine and inspect in OCC.

12 U. S. C. §484(a). The Michigan provisions at issue exempt na

tional banks themselves from coverage. This is not simply a matter

of the Michigan Legislature’s grace. For, as the parties recognize, the

NBA would spare a national bank from state controls of the kind here

involved. Pp. 5–10.

Cite as: 550 U. S. ____ (2007) 3

Syllabus

(b) Since 1966, OCC has recognized national banks’ “incidental”

authority under §24 Seventh to do business through operating sub

sidiaries. See 12 CFR §5.34(e)(1). That authority is uncontested by

Michigan’s Commissioner. OCC licenses and oversees national bank

operating subsidiaries just as it does national banks. See, e.g.,

§5.34(e)(3); 12 U. S. C. §24a(g)(3)(A). Just as duplicative state ex

amination, supervision, and regulation would significantly burden

national banks’ mortgage lending, so too those state controls would

interfere with that same activity when engaged in by a national

bank’s operating subsidiary. This Court has never held that the

NBA’s preemptive reach extends only to a national bank itself; in

stead, the Court has focused on the exercise of a national bank’s pow

ers, not on its corporate structure, in analyzing whether state law

hampers the federally permitted activities of a national bank. See,

e.g., Barnett Bank, 517 U. S., at 32. And the Court has treated oper

ating subsidiaries as equivalent to national banks with respect to

powers exercised under federal law (except where federal law pro

vides otherwise). See, e.g., NationsBank, 513 U. S., at 256–251. Se

curity against significant interference by state regulators is a charac

teristic condition of “the business of banking” conducted by national

banks, and mortgage lending is one aspect of that business. See, e.g.,

12 U. S. C. §484(a). That security should adhere whether the busi

ness is conducted by the bank itself or by an OCC-licensed operating

subsidiary whose authority to carry on the business coincides com

pletely with the bank’s.

Watters contends that if Congress meant to deny States visitorial

powers over operating subsidiaries, it would have written §484(a)’s

ban on state inspection to apply not only to national banks but also to

their affiliates. She points out that §481, which authorizes OCC to

examine “affiliates” of national banks, does not speak to state visito

rial powers. This argument fails for two reasons. First, any inten

tion regarding operating subsidiaries cannot be ascribed to the 1864

Congress that enacted §§481 and 484, or the 1933 Congress that

added the affiliate examination provisions to §481 and the “affiliate”

definition to §221a, because operating subsidiaries were not author

ized until 1966. Second, Watters ignores the distinctions Congress

recognized among “affiliates.” Unlike affiliates that may engage in

functions not authorized by the NBA, an operating subsidiary is

tightly tied to its parent by the specification that it may engage only

in “the business of banking,” §24a(g)(3)(A). Notably, when Congress

amended the NBA to provide that operating subsidiaries may “en

gag[e] solely in activities that national banks are permitted to engage

in directly,” ibid., it did so in an Act providing that other affiliates,

authorized to engage in nonbanking financial activities, e.g., securi

4 WATTERS v. WACHOVIA BANK, N. A.

Syllabus

ties and insurance, are subject to state regulation in connection with

those activities. See, e.g., §§1843(k), 1844(c)(4). Pp. 10–15.

(c) Recognizing the necessary consequence of national banks’ au

thority to engage in mortgage lending through an operating subsidi

ary “subject to the same terms and conditions that govern the con

duct of such activities by national banks,” §24a(g)(3)(A), OCC

promulgated 12 CFR §7.4006: “Unless otherwise provided by Federal

law or OCC regulation, State laws apply to national bank operating

subsidiaries to the same extent that those laws apply to the parent

national bank.” Watters disputes OCC’s authority to promulgate this

regulation and contends that, because preemption is a legal question

for determination by courts, §7.4006 should attract no deference.

This argument is beside the point, for §7.4006 merely clarifies and

confirms what the NBA already conveys: A national bank may en

gage in real estate lending through an operating subsidiary, subject

to the same terms and conditions that govern the bank itself; that

power cannot be significantly impaired or impeded by state law.

Though state law governs incorporation-related issues, state regula

tors cannot interfere with the “business of banking” by subjecting na

tional banks or their OCC-licensed operating subsidiaries to multiple

audits and surveillance under rival oversight regimes. Pp. 15–17.

2. Watters’ alternative argument, that 12 CFR §7.4006 violates the

Tenth Amendment, is unavailing. The Amendment expressly dis

claims any reservation to the States of a power delegated to Congress

in the Constitution, New York v. United States, 505 U. S. 144, 156.

Because regulation of national bank operations is Congress’ preroga

tive under the Commerce and Necessary and Proper Clauses, see

Citizens Bank v. Alafabco, Inc., 539 U. S. 52, 58, the Amendment is

not implicated here. P. 17.

431 F. 3d 556, affirmed.

GINSBURG, J., delivered the opinion of the Court, in which KENNEDY,

SOUTER, BREYER, and ALITO, JJ., joined. STEVENS, J., filed a dissenting

opinion, in which ROBERTS, C. J., and SCALIA, J., joined. THOMAS, J.,

took no part in the consideration or decision of the case.

Cite as: 550 U. S. ____ (2007) 1

Opinion of the Court

NOTICE: This opinion is subject to formal revision before publication in the

preliminary print of the United States Reports. Readers are requested to

notify the Reporter of Decisions, Supreme Court of the United States, Wash

ington, D. C. 20543, of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

_________________

No. 05–1342

_________________

LINDA A. WATTERS, COMMISSIONER, MICHIGAN

OFFICE OF INSURANCE AND FINANCIAL

SERVICES, PETITIONER v. WACHOVIA

BANK, N. A., ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

[April 17, 2007]

JUSTICE GINSBURG delivered the opinion of the Court.

Business activities of national banks are controlled by

the National Bank Act (NBA or Act), 12 U. S. C. §1 et seq.,

and regulations promulgated thereunder by the Office of

the Comptroller of the Currency (OCC). See §§24, 93a,

371(a). As the agency charged by Congress with supervi

sion of the NBA, OCC oversees the operations of national

banks and their interactions with customers. See

NationsBank of N. C., N. A. v. Variable Annuity Life Ins.

Co., 513 U. S. 251, 254, 256 (1995). The agency exercises

visitorial powers, including the authority to audit the

bank’s books and records, largely to the exclusion of other

governmental entities, state or federal. See §484(a); 12

CFR §7.4000 (2006).

The NBA specifically authorizes federally chartered

banks to engage in real estate lending. 12 U. S. C. §371.

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.” §24 Seventh. Among

2 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

incidental powers, national banks may conduct certain

activities through “operating subsidiaries,” discrete enti

ties authorized to engage solely in activities the bank itself

could undertake, and subject to the same terms and condi

tions as those applicable to the bank. See §24a(g)(3)(A);

12 CFR §5.34(e) (2006).

Respondent Wachovia Bank, a national bank, conducts

its real estate lending business through Wachovia Mort

gage Corporation, a wholly owned, state-chartered entity,

licensed as an operating subsidiary by OCC. It is uncon

tested in this suit that Wachovia’s real estate business, if

conducted by the national bank itself, would be subject to

OCC’s superintendence, to the exclusion of state registra

tion requirements and visitorial authority. The question

in dispute is whether the bank’s mortgage lending activi

ties remain outside the governance of state licensing and

auditing agencies when those activities are conducted, not

by a division or department of the bank, but by the bank’s

operating subsidiary. In accord with the Courts of Ap

peals that have addressed the issue,1 we hold that Wacho

via’s mortgage business, whether conducted by the bank

itself or through the bank’s operating subsidiary, is sub

ject to OCC’s superintendence, and not to the licensing,

reporting, and visitorial regimes of the several States in

which the subsidiary operates.

I

Wachovia Bank is a national banking association char

tered by OCC. Respondent Wachovia Mortgage is a North

Carolina corporation that engages in the business of real

estate lending in the State of Michigan and elsewhere.

Michigan’s statutory regime exempts banks, both national

——————

1 National

City Bank of Indiana v. Turnbaugh, 463 F. 3d 325 (CA4

2006); Wachovia Bank, N. A. v. Burke, 414 F. 3d 305 (CA2 2005); 431

F. 3d 556 (CA6 2005) (case below); Wells Fargo Bank N. A. v. Boutris,

419 F. 3d 949 (CA9 2005).

Cite as: 550 U. S. ____ (2007) 3

Opinion of the Court

and state, from state mortgage lending regulation, but

requires mortgage brokers, lenders, and servicers that are

subsidiaries of national banks to register with the State’s

Office of Insurance and Financial Services (OIFS) and

submit to state supervision. Mich. Comp. Laws Ann.

§§445.1656(1), 445.1679(1)(a) (West 2002), 493.52(1), and

493.53a(d) (West 1998).2 From 1997 until 2003, Wachovia

Mortgage was registered with OIFS to engage in mortgage

lending. As a registrant, Wachovia Mortgage was re

quired, inter alia, to pay an annual operating fee, file an

annual report, and open its books and records to inspec

tion by OIFS examiners. §§445.1657, 445.1658, 445.1671

(West 2002), 493.54, 493.56a(2), (13) (West 1998).

Petitioner Linda Watters, the commissioner of OIFS,

administers the State’s lending laws. She exercises “gen

eral supervision and control” over registered lenders, and

has authority to conduct examinations and investigations

and to enforce requirements against registrants. See

§§445.1661, 445.1665, 445.1666 (West 2002), 493.58,

493.56b, 493.59, 493.62a (West 1998 and Supp. 2005). She

also has authority to investigate consumer complaints and

take enforcement action if she finds that a complaint is

not “being adequately pursued by the appropriate federal

regulatory authority.” §445.1663(2) (West 2002).

On January 1, 2003, Wachovia Mortgage became a

wholly owned operating subsidiary of Wachovia Bank.

Three months later, Wachovia Mortgage advised the State

of Michigan that it was surrendering its mortgage lending

registration. Because it had become an operating subsidi

ary of a national bank, Wachovia Mortgage maintained,

Michigan’s registration and inspection requirements were

——————

2 Michigan’s law exempts subsidiaries of national banks that main

tain a main office or branch office in Michigan. Mich. Comp. Laws Ann.

§§445.1652(1)(b) (West Supp. 2006), 445.1675(m) (West 2002),

493.53a(d) (West 1998). Wachovia Bank has no such office in Michigan.

4 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

preempted. Watters responded with a letter advising

Wachovia Mortgage that it would no longer be authorized

to conduct mortgage lending activities in Michigan.

Wachovia Mortgage and Wachovia Bank filed suit

against Watters, in her official capacity as commissioner,

in the United States District Court for the Western Dis

trict of Michigan. They sought declaratory and injunctive

relief prohibiting Watters from enforcing Michigan’s regis

tration prescriptions against Wachovia Mortgage, and

from interfering with OCC’s exclusive visitorial authority.

The NBA and regulations promulgated thereunder, they

urged, vest supervisory authority in OCC and preempt the

application of the state-law controls at issue. Specifically,

Wachovia Mortgage and Wachovia Bank challenged as

preempted certain provisions of two Michigan statutes—

the Mortgage Brokers, Lenders, and Services Licensing

Act and the Secondary Mortgage Loan Act. The chal

lenged provisions (1) require mortgage lenders—including

national bank operating subsidiaries but not national

banks themselves—to register and pay fees to the State

before they may conduct banking activities in Michigan,

and authorize the commissioner to deny or revoke regis

trations, §§445.1652(1) (West Supp. 2006), 445.1656(1)(d)

(West 2002), 445.1657(1), 445.1658, 445.1679(1)(a),

493.52(1) (West 1998), 493.53a(d), 493.54, 493.55(4),

493.56a(2), and 493.61; (2) require submission of annual

financial statements to the commissioner and retention of

certain documents in a particular format, §§445.1657(2)

(West 2002), 445.1671, 493.56a(2) (West 1998); (3) grant

the commissioner inspection and enforcement authority

over registrants, §§445.1661 (West 2002), 493.56b (West

Supp. 2005); and (4) authorize the commissioner to take

regulatory or enforcement actions against covered lenders,

§§445.1665 (West 2002), 445.1666, 493.58–59, and 493.62a

(West 1998).

In response, Watters argued that, because Wachovia

Cite as: 550 U. S. ____ (2007) 5

Opinion of the Court

Mortgage was not itself a national bank, the challenged

Michigan controls were applicable and were not pre

empted. She also contended that the Tenth Amendment

to the Constitution of the United States prohibits OCC’s

exclusive superintendence of national bank lending activi

ties conducted through operating subsidiaries.

The District Court granted summary judgment to the

banks in relevant part. 334 F. Supp. 2d 957, 966 (WD

Mich. 2004). Invoking the two-step framework of Chevron

U. S. A. Inc. v. Natural Resources Defense Council, Inc.,

467 U. S. 837 (1984), the court deferred to the Comptrol

ler’s determination that an operating subsidiary is subject

to state regulation only to the extent that the parent bank

would be if it performed the same functions. 334 F. Supp.

2d, at 963–965 (citing, e.g., 12 CFR §§5.34(e)(3), 7.4006

(2004)). The court also rejected Watters’ Tenth Amend

ment argument. 334 F. Supp. 2d, at 965–966. The Sixth

Circuit affirmed. 431 F. 3d 556 (2005). We granted certio

rari. 547 U. S. ___ (2006).

II

A

Nearly two hundred years ago, in McCulloch v. Mary

land, 4 Wheat. 316 (1819), this Court held federal law

supreme over state law with respect to national banking.

Though the bank at issue in McCulloch was short-lived, a

federal banking system reemerged in the Civil War era.

See Atherton v. FDIC, 519 U. S. 213, 221–222 (1997); B.

Hammond, Banks and Politics in America: from the Revo

lution to the Civil War (1957). In 1864, Congress enacted

the NBA, establishing the system of national banking still

in place today. National Bank Act, ch. 106, 13 Stat. 99;3

Atherton, 519 U. S., at 222; Marquette Nat. Bank of Min

——————

3 The Act of June 3, 1864, ch. 106, 13 Stat. 99, was originally entitled

“An Act to provide a National Currency . . .”; its title was altered by

Congress in 1874 to “the National Bank Act.” Ch. 343, 18 Stat. 123.

6 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

neapolis v. First of Omaha Service Corp., 439 U. S. 299,

310, 314–315 (1978). The Act vested in nationally char

tered banks enumerated powers and “all such incidental

powers as shall be necessary to carry on the business of

banking.” 12 U. S. C. §24 Seventh. To prevent inconsis

tent or intrusive state regulation from impairing the

national system, Congress provided: “No national bank

shall be subject to any visitorial powers except as author

ized by Federal law . . . .” §484(a).

In the years since the NBA’s enactment, we have re

peatedly made clear that federal control shields national

banking from unduly burdensome and duplicative state

regulation. See, e.g., Beneficial Nat. Bank v. Anderson,

539 U. S. 1, 10 (2003) (national banking system protected

from “possible unfriendly State legislation” (quoting Tif

fany v. National Bank of Mo., 18 Wall. 409, 412 (1874))).

Federally chartered banks are subject to state laws of

general application in their daily business to the extent

such laws do not conflict with the letter or the general

purposes of the NBA. Davis v. Elmira Savings Bank, 161

U. S. 275, 290 (1896). See also Atherton, 519 U. S., at 223.

For example, state usury laws govern the maximum rate

of interest national banks can charge on loans, 12 U. S. C.

§85, contracts made by national banks “are governed and

construed by State laws,” National Bank v. Common

wealth, 9 Wall. 353, 362 (1870), and national banks’ “ac

quisition and transfer of property [are] based on State

law,” ibid. However, “the States can exercise no control

over [national banks], nor in any wise affect their opera

tion, except in so far as Congress may see proper to per

mit. Any thing beyond this is an abuse, because it is the

usurpation of power which a single State cannot give.”

Farmers’ and Mechanics’ Nat. Bank v. Dearing, 91 U. S.

29, 34 (1875) (internal quotation marks omitted).

We have “interpret[ed] grants of both enumerated and

incidental ‘powers’ to national banks as grants of author

Cite as: 550 U. S. ____ (2007) 7

Opinion of the Court

ity not normally limited by, but rather ordinarily pre

empting, contrary state law.” Barnett Bank of Marion

Cty., N. A. v. Nelson, 517 U. S. 25, 32 (1996). See also

Franklin Nat. Bank of Franklin Square v. New York, 347

U. S. 373, 375–379 (1954). States are permitted to regu

late the activities of national banks where doing so does

not prevent or significantly interfere with the national

bank’s or the national bank regulator’s exercise of its

powers. But when state prescriptions significantly impair

the exercise of authority, enumerated or incidental under

the NBA, the State’s regulations must give way. Barnett

Bank, 517 U. S., at 32–34 (federal law permitting national

banks to sell insurance in small towns preempted state

statute prohibiting banks from selling most types of insur

ance); Franklin Nat. Bank, 347 U. S., at 377–379 (local

restrictions preempted because they burdened exercise of

national banks’ incidental power to advertise).

The NBA authorizes national banks to engage in

mortgage lending, subject to OCC regulation. The Act

provides:

“Any national banking association may make, ar

range, purchase or sell loans or extensions of credit

secured by liens on interests in real estate, subject to

1828(o) of this title and such restrictions and re

quirements as the Comptroller of the Currency may

prescribe by regulation or order.” 12 U. S. C. §371(a).4

Beyond genuine dispute, state law may not significantly

burden a national bank’s own exercise of its real estate

——————

4 Section1828(o) requires federal banking agencies to adopt uniform

regulations prescribing standards for real estate lending by depository

institutions and sets forth criteria governing such standards. See, e.g.,

§1828(o)(2)(A) (“In prescribing standards . . . the agencies shall con

sider—(i) the risk posed to the deposit insurance funds by such exten

sions of credit; (ii) the need for safe and sound operation of insured

depository institutions; and (iii) the availability of credit.”).

8 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

lending power, just as it may not curtail or hinder a na

tional bank’s efficient exercise of any other power, inciden

tal or enumerated under the NBA. See Barnett Bank, 517

U. S., at 33–34; Franklin, 347 U. S., at 375–379. See also

12 CFR §34.4(a)(1) (2006) (identifying preempted state

controls on mortgage lending, including licensing and

registration). In particular, real estate lending, when

conducted by a national bank, is immune from state visi

torial control: The NBA specifically vests exclusive author

ity to examine and inspect in OCC. 12 U. S. C. §484(a)

(“No national bank shall be subject to any visitorial pow

ers except as authorized by Federal law.”).5

Harmoniously, the Michigan provisions at issue exempt

national banks from coverage. Mich. Comp. Laws Ann.

§445.1675(a) (West 2002). This is not simply a matter of

the Michigan Legislature’s grace. Cf. post, at 13–14, and

n. 17. For, as the parties recognize, the NBA would have

preemptive force, i.e., it would spare a national bank from

state controls of the kind here involved. See Brief for

Petitioner 12; Brief for Respondents 14; Brief for United

States as Amicus Curiae 9. State laws that conditioned

national banks’ real estate lending on registration with

the State, and subjected such lending to the State’s inves

tigative and enforcement machinery would surely inter

fere with the banks’ federally authorized business: Na

tional banks would be subject to registration, inspection,

and enforcement regimes imposed not just by Michigan,

but by all States in which the banks operate.6 Diverse and

——————

5 Seealso 2 R. Taylor, Banking Law §37.02, p. 37–5 (2006) (“[OCC]

has exclusive authority to charter and examine [national] banks.”

(footnote omitted)).

6 See 69 Fed. Reg. 1908 (2004) (“The application of multiple, often

unpredictable, different state or local restrictions and requirements

prevents [national banks] from operating in the manner authorized

under Federal law, is costly and burdensome, interferes with their

ability to plan their business and manage their risks, and subjects

Cite as: 550 U. S. ____ (2007) 9

Opinion of the Court

duplicative superintendence of national banks’ engage

ment in the business of banking, we observed over a cen

tury ago, is precisely what the NBA was designed to pre

vent: “Th[e] legislation has in view the erection of a

system extending throughout the country, and independ

ent, so far as powers conferred are concerned, of state

legislation which, if permitted to be applicable, might

impose limitations and restrictions as various and as

numerous as the States.” Easton v. Iowa, 188 U. S. 220,

229 (1903). Congress did not intend, we explained, “to

leave the field open for the States to attempt to promote

the welfare and stability of national banks by direct legis

lation. . . . [C]onfusion would necessarily result from con

trol possessed and exercised by two independent authori

ties.” Id., at 231–232.

Recognizing the burdens and undue duplication state

controls could produce, Congress included in the NBA an

express command: “No national bank shall be subject to

any visitorial powers except as authorized by Federal

law. . . .” 12 U. S. C. §484(a). See supra, at 6, 8; post, at

10 (acknowledging that national banks have been “ex

emp[t] from state visitorial authority . . . for more than

140 years”). “Visitation,” we have explained “is the act of

a superior or superintending officer, who visits a corpora

tion to examine into its manner of conducting business,

and enforce an observance of its laws and regulations.”

Guthrie v. Harkness, 199 U. S. 148, 158 (1905) (internal

quotation marks omitted). See also 12 CFR §7.4000(a)(2)

(2006) (defining “visitorial” power as “(i) [e]xamination of a

bank; (ii) [i]nspection of a bank’s books and records; (iii)

[r]egulation and supervision of activities authorized or

permitted pursuant to federal banking law; and (iv)

[e]nforcing compliance with any applicable federal or state

laws concerning those activities”). Michigan, therefore,

——————

them to uncertain liabilities and potential exposure.”).

10 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

cannot confer on its commissioner examination and en

forcement authority over mortgage lending, or any other

banking business done by national banks.7

B

While conceding that Michigan’s licensing, registration,

and inspection requirements cannot be applied to national

banks, see, e.g., Brief for Petitioner 10, 12, Watters argues

that the State’s regulatory regime survives preemption

with respect to national banks’ operating subsidiaries.

Because such subsidiaries are separately chartered under

some State’s law, Watters characterizes them simply as

“affiliates” of national banks, and contends that even

though they are subject to OCC’s superintendence, they

——————

7 Ours is indeed a “dual banking system.” See post, at 1–5, 23. But it

is a system that has never permitted States to license, inspect, and

supervise national banks as they do state banks. The dissent repeat

edly refers to the policy of “competitive equality” featured in First Nat.

Bank in Plant City v. Dickinson, 396 U. S. 122, 131 (1969). See post, at

4, 14, 19, 23. Those words, however, should not be ripped from their

context. Plant City involved the McFadden Act (Branch Banks), 44

Stat. 1228, 12 U. S. C. §36, in which Congress expressly authorized

national banks to establish branches “only when, where, and how state

law would authorize a state bank to establish and operate such

[branches].” 396 U. S., at 130. See also id., at 131 (“[W]hile Congress

has absolute authority over national banks, the [McFadden Act] has

incorporated by reference the limitations which state law places on

branch banking activities by state banks. Congress has deliberately

settled upon a policy intended to foster competitive equality. . . . [The]

Act reflects the congressional concern that neither system ha[s] advan

tages over the other in the use of branch banking.” (quoting First Nat.

Bank of Logan v. Walker Bank & Trust Co., 385 U. S. 252, 261 (1966))).

“[W]here Congress has not expressly conditioned the grant of ‘power’

upon a grant of state permission, the Court has ordinarily found that

no such condition applies.” Barnett Bank of Marion Cty., N. A. v.

Nelson, 517 U. S. 25, 34 (1996). The NBA provisions before us, unlike

the McFadden Act, do not condition the exercise of power by national

banks on state allowance of similar exercises by state banks. See

supra, at 7–8.

Cite as: 550 U. S. ____ (2007) 11

Opinion of the Court

are also subject to multistate control. Id., at 17–22. We

disagree.

Since 1966, OCC has recognized the “incidental” author

ity of national banks under §24 Seventh to do business

through operating subsidiaries. See 31 Fed. Reg. 11459–

11460 (1966); 12 CFR §5.34(e)(1) (2006) (“A national bank

may conduct in an operating subsidiary activities that are

permissible for a national bank to engage in directly either

as part of, or incidental to, the business of banking . . . .”).

That authority is uncontested by Michigan’s commis

sioner. See Brief for Petitioner 21 (“[N]o one disputes that

12 U. S. C. §24 (Seventh) authorizes national banks to use

nonbank operating subsidiaries . . . .”). OCC licenses and

oversees national bank operating subsidiaries just as it

does national banks. §5.34(e)(3) (“An operating subsidiary

conducts activities authorized under this section pursuant

to the same authorization, terms and conditions that apply

to the conduct of such activities by its parent national

bank.”);8 United States Office of the Comptroller of the

Currency, Related Organizations: Comptroller’s Handbook

53 (Aug. 2004) (hereinafter Comptroller’s Handbook)

(“Operating subsidiaries are subject to the same supervi

sion and regulation as the parent bank, except where

otherwise provided by law or OCC regulation.”).

In 1999, Congress defined and regulated “financial”

subsidiaries; simultaneously, Congress distinguished

those national bank affiliates from subsidiaries—typed

“operating subsidiaries” by OCC—which may engage only

——————

8 The regulation further provides:

“If, upon examination, the OCC determines that the operating subsidi

ary is operating in violation of law, regulation, or written condition, or

in an unsafe or unsound manner or otherwise threatens the safety or

soundness of the bank, the OCC will direct the bank or operating

subsidiary to take appropriate remedial action, which may include

requiring the bank to divest or liquidate the operating subsidiary, or

discontinue specified activities.” 12 CFR §5.34(e)(3) (2006).

12 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

in activities national banks may engage in directly, “sub

ject to the same terms and conditions that govern the

conduct of such activities by national banks.” Gramm-

Leach-Bliley Act (GLBA), §121(a)(2), 113 Stat. 1378 (codi

fied at 12 U. S. C. §24a(g)(3)(A)).9 For supervisory pur

poses, OCC treats national banks and their operating

subsidiaries as a single economic enterprise. Comptrol

ler’s Handbook 64. OCC oversees both entities by refer

ence to “business line,” applying the same controls

whether banking “activities are conducted directly or

through an operating subsidiary.” Ibid.10

As earlier noted, Watters does not contest the authority

of national banks to do business through operating sub

sidiaries. Nor does she dispute OCC’s authority to super

——————

9 OCC subsequently revised its regulations to track the statute. See

§5.34(e)(1), (3); Financial Subsidiaries and Operating Subsidiaries, 65

Fed. Reg. 12905, 12911 (2000). Cf. post, at 10 (dissent’s grudging

acknowledgment that Congress “may have acquiesced” in OCC’s

position that national banks may engage in “the business of banking”

through operating subsidiaries empowered to do only what the bank

itself can do).

10 For example, “for purposes of applying statutory or regulatory lim

its, such as lending limits or dividend restrictions,” e.g., 12 U. S. C.

§§56, 60, 84, 371d, “[t]he results of operations of operating subsidiaries

are consolidated with those of its parent.” Comptroller’s Handbook 64.

Likewise, for accounting and regulatory reporting purposes, an operat

ing subsidiary is treated as part of the member bank; assets and

liabilities of the two entities are combined. See 12 CFR §§5.34(e)(4)(i),

223.3(w) (2006). OCC treats financial subsidiaries differently. A

national bank may not consolidate the assets and liabilities of a finan

cial subsidiary with those of the bank. Comptroller’s Handbook 64. It

cannot be fairly maintained “that the transfer in 2003 of [Wachovia

Mortgage’s] ownership from the holding company to the Bank” resulted

in no relevant changes to the company’s business. Compare post, at 14,

with supra, at 11, n. 8. On becoming Wachovia’s operating subsidiary,

Wachovia Mortgage became subject to the same terms and conditions

as national banks, including the full supervisory authority of OCC.

This change exposed the company to significantly more federal over

sight than it experienced as a state nondepository institution.

Cite as: 550 U. S. ____ (2007) 13

Opinion of the Court

vise and regulate operating subsidiaries in the same man

ner as national banks. Still, Watters seeks to impose state

regulation on operating subsidiaries over and above regu

lation undertaken by OCC. But just as duplicative state

examination, supervision, and regulation would signifi

cantly burden mortgage lending when engaged in by

national banks, see supra, at 6–10, so too would those

state controls interfere with that same activity when

engaged in by an operating subsidiary.

We have never held that the preemptive reach of the

NBA extends only to a national bank itself. Rather, in

analyzing whether state law hampers the federally per

mitted activities of a national bank, we have focused on

the exercise of a national bank’s powers, not on its corpo

rate structure. See, e.g., Barnett Bank, 517 U. S., at 32.

And we have treated operating subsidiaries as equivalent

to national banks with respect to powers exercised under

federal law (except where federal law provides otherwise).

In NationsBank of N. C., N. A., 513 U. S., at 256–261, for

example, we upheld OCC’s determination that national

banks had “incidental” authority to act as agents in the

sale of annuities. It was not material that the function

qualifying as within “the business of banking,” §24 Sev

enth, was to be carried out not by the bank itself, but by

an operating subsidiary, i.e., an entity “subject to the same

terms and conditions that govern the conduct of [the activ

ity] by national banks [themselves].” §24a(g)(3)(A); 12

CFR §5.34(e)(3) (2006). See also Clarke v. Securities In

dustry Assn., 479 U. S. 388 (1987) (national banks, acting

through operating subsidiaries, have power to offer dis

count brokerage services).11

——————

11 Cf. Marquette Nat. Bank of Minneapolis v. First of Omaha Service

Corp., 439 U. S. 299, 308, and n. 24 (1978) (holding that national bank

may charge home State’s interest rate, regardless of more restrictive

usury laws in borrower’s State, but declining to consider operating

subsidiaries).

14 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

Security against significant interference by state regula

tors is a characteristic condition of the “business of bank

ing” conducted by national banks, and mortgage lending is

one aspect of that business. See, e.g., 12 U. S C. §484(a);

12 CFR §34.4(a)(1) (2006). See also supra, at 6–10; post,

at 6 (acknowledging that, in 1982, Congress broadly au

thorized national banks to engage in mortgage lending);

post, at 16, and n. 20 (acknowledging that operating sub

sidiaries “are subject to the same federal oversight as their

national bank parents”). That security should adhere

whether the business is conducted by the bank itself or is

assigned to an operating subsidiary licensed by OCC

whose authority to carry on the business coincides com

pletely with that of the bank. See Wells Fargo Bank, N. A.

v. Boutris, 419 F. 3d 949, 960 (CA9 2005) (determination

whether to conduct business through operating subsidiar

ies or through subdivisions is “essentially one of internal

organization”).

Watters contends that if Congress meant to deny States

visitorial powers over operating subsidiaries, it would

have written §484(a)’s ban on state inspection to apply not

only to national banks but also to their affiliates. She

points out that §481, which authorizes OCC to examine

“affiliates” of national banks, does not speak to state

visitorial powers. This argument fails for two reasons.

First, one cannot ascribe any intention regarding operat

ing subsidiaries to the 1864 Congress that enacted §§481

and 484, or the 1933 Congress that added the provisions

on examining affiliates to §481 and the definition of “af

filiate” to §221a. That is so because operating subsidiaries

were not authorized until 1966. See supra, at 11. Over

the past four decades, during which operating subsidiaries

have emerged as important instrumentalities of national

banks, Congress and OCC have indicated no doubt that

such subsidiaries are “subject to the same terms and

conditions” as national banks themselves.

Cite as: 550 U. S. ____ (2007) 15

Opinion of the Court

Second, Watters ignores the distinctions Congress rec

ognized among “affiliates.” The NBA broadly defines the

term “affiliate” to include “any corporation” controlled by a

national bank, including a subsidiary. See 12 U. S. C.

§221a(b). An operating subsidiary is therefore one type of

“affiliate.” But unlike affiliates that may engage in func

tions not authorized by the NBA, e.g., financial subsidiar

ies, an operating subsidiary is tightly tied to its parent by

the specification that it may engage only in “the business

of banking” as authorized by the Act. §24a(g)(3)(A); 12

CFR §5.34(e)(1) (2006). See also supra, at 11–12, and

n. 10. Notably, when Congress amended the NBA con

firming that operating subsidiaries may “engag[e] solely in

activities that national banks are permitted to engage in

directly,” 12 U. S. C. §24a(g)(3)(A), it did so in an Act, the

GLBA, providing that other affiliates, authorized to en

gage in nonbanking financial activities, e.g., securities and

insurance, are subject to state regulation in connection

with those activities. See, e.g., §§1843(k), 1844(c)(4). See

also 15 U. S. C. §6701(b) (any person who sells insurance

must obtain a state license to do so).12

C

Recognizing the necessary consequence of national

banks’ authority to engage in mortgage lending through

an operating subsidiary “subject to the same terms and

conditions that govern the conduct of such activities by

national banks,” 12 U. S. C. §24a(g)(3)(A), see also §24

Seventh, OCC promulgated 12 CFR §7.4006 (2006):

“Unless otherwise provided by Federal law or OCC regula

——————

12 The dissent protests that the GLBA does not itself preempt the

Michigan provisions at issue. Cf. post, at 15–17. We express no opinion

on that matter. Our point is more modest: The GLBA simply demon

strates Congress’ formal recognition that national banks have inciden

tal power to do business through operating subsidiaries. See supra, at

11–12; cf. post, at 9–10.

16 WATTERS v. WACHOVIA BANK, N. A.

Opinion of the Court

tion, State laws apply to national bank operating subsidi

aries to the same extent that those laws apply to the

parent national bank.” See Investment Securities; Bank

Activities & Operations; Leasing, 66 Fed. Reg. 34784,

34788 (2001). Watters disputes the authority of OCC to

promulgate this regulation and contends that, because

preemption is a legal question for determination by courts,

§7.4006 should attract no deference. See also post, at 17–

23. This argument is beside the point, for under our in

terpretation of the statute, the level of deference owed to

the regulation is an academic question. Section 7.4006

merely clarifies and confirms what the NBA already con

veys: A national bank has the power to engage in real

estate lending through an operating subsidiary, subject to

the same terms and conditions that govern the national

bank itself; that power cannot be significantly impaired or

impeded by state law. See, e.g., Barnett Bank, 517 U. S.,

at 33–34; 12 U. S. C. §§24 Seventh, 24a(g)(3)(A), 371.13

The NBA is thus properly read by OCC to protect from

state hindrance a national bank’s engagement in the

“business of banking” whether conducted by the bank

itself or by an operating subsidiary, empowered to do only

what the bank itself could do. See supra, at 11–12. The

authority to engage in the business of mortgage lending

comes from the NBA, §371, as does the authority to con

duct business through an operating subsidiary. See §§24

Seventh, 24a(g)(3)(A). That Act vests visitorial oversight

——————

13 Because we hold that the NBA itself—independent of OCC’s regu

lation—preempts the application of the pertinent Michigan laws to

national bank operating subsidiaries, we need not consider the dissent’s

lengthy discourse on the dangers of vesting preemptive authority in

administrative agencies. See post, at 17–23; cf. post, at 23–24 (main

taining that “[w]hatever the Court says, this is a case about an admin

istrative agency’s power to preempt state laws,” and accusing the Court

of “endors[ing] administrative action whose sole purpose was to pre

empt state law rather than to implement a statutory command”).

Cite as: 550 U. S. ____ (2007) 17

Opinion of the Court

in OCC, not state regulators. §484(a). State law (in this

case, North Carolina law), all agree, governs incorpora

tion-related issues, such as the formation, dissolution, and

internal governance of operating subsidiaries.14 And the

laws of the States in which national banks or their affili

ates are located govern matters the NBA does not address.

See supra, at 6. But state regulators cannot interfere with

the “business of banking” by subjecting national banks or

their OCC-licensed operating subsidiaries to multiple

audits and surveillance under rival oversight regimes.

III

Watters’ alternative argument, that 12 CFR §7.4006

violates the Tenth Amendment to the Constitution, is

unavailing. As we have previously explained, “[i]f a power

is delegated to Congress in the Constitution, the Tenth

Amendment expressly disclaims any reservation of that

power to the States.” New York v. United States, 505 U. S.

144, 156 (1992). Regulation of national bank operations is

a prerogative of Congress under the Commerce and Neces

sary and Proper Clauses. See Citizens Bank v. Alafabco,

Inc., 539 U. S. 52, 58 (2003) (per curiam). The Tenth

Amendment, therefore, is not implicated here.

* * *

For the reasons stated, the judgment of the Sixth Cir

cuit is

Affirmed.

JUSTICE THOMAS took no part in the consideration or

decision of this case.

——————

14 Watters does not assert that Wachovia Mortgage is out of compli

ance with any North Carolina law governing its corporate status.

Cite as: 550 U. S. ____ (2007) 1

STEVENS, J., dissenting

SUPREME COURT OF THE UNITED STATES

_________________

No. 05–1342

_________________

LINDA A. WATTERS, COMMISSIONER, MICHIGAN

OFFICE OF INSURANCE AND FINANCIAL

SERVICES, PETITIONER v. WACHOVIA

BANK, N. A., ET AL.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

[April 17, 2007]

JUSTICE STEVENS, with whom THE CHIEF JUSTICE and

JUSTICE SCALIA join, dissenting.

Congress has enacted no legislation immunizing na

tional bank subsidiaries from compliance with non

discriminatory state laws regulating the business activi

ties of mortgage brokers and lenders. Nor has it

authorized an executive agency to preempt such state laws

whenever it concludes that they interfere with national

bank activities. Notwithstanding the absence of relevant

statutory authority, today the Court endorses an agency’s

incorrect determination that the laws of a sovereign State

must yield to federal power. The significant impact of the

Court’s decision on the federal-state balance and the dual

banking system makes it appropriate to set forth in full

the reasons for my dissent.

I

The National Bank Act (or NBA), 13 Stat. 99, author

ized the incorporation of national banks, §5, id., at 98, and

granted them “all such incidental powers as shall be nec

essary to carry on the business of banking,” §8, id., at 98

(codified at 12 U. S. C. §24 Seventh), subject to regulatory

oversight by the Comptroller of the Currency, §54, 13 Stat.

2 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

116. To maintain a meaningful role for state legislation

and for state corporations that did not engage in core

banking activities, Congress circumscribed national bank

authority. Notably, national banks were expressly forbid

den from making mortgage loans, §28, id., at 108.1 More

over, the shares of national banks, as well their real estate

holdings, were subject to nondiscriminatory state taxation,

§41, id., at 111; and while national banks could lend

money, state law capped the interest rates they could

charge, §20, id., at 105.

Originally, it was anticipated that “existing banks

would surrender their state charters and re-incorporate

under the terms of the new law with national charters.”2

That did not happen. Instead, after an initial post-

National Bank Act decline, state-chartered institutions

thrived.3 What emerged was the competitive mix of state

and national banks known as the dual banking system.

This Court has consistently recognized that because

federal law is generally interstitial, national banks must

comply with most of the same rules as their state counter

parts. As early as 1870, we articulated the principle that

has remained the lodestar of our jurisprudence: that na

tional banks

“are only exempted from State legislation, so far as

that legislation may interfere with, or impair their ef

——————

1 “There is no more characteristic difference between the state and

the national banking laws than the fact that almost without exception,

state banks may loan on real estate security, while national banks are

prohibited from doing so.” G. Barnett, State Banking in the United

States Since the Passage of the National Bank Act 50 (1902) (reprint

1983) (hereinafter Barnett).

2 B. Hammond, Banks and Politics in America: from the Revolution to

the Civil War 728 (1957).

3 Id., at 733. See also Barnett 73–74 (estimating that more than 800

state banks were in operation in 1877, and noting the “remarkable

increase in the number of state banks” during the last two decades of

the 19th century).

Cite as: 550 U. S. ____ (2007) 3

STEVENS, J., dissenting

ficiency in performing the functions by which they are

designed to serve that government. . . . They are sub

ject to the laws of the State, and are governed in their

daily course of business far more by the laws of the

State than of the nation. All their contracts are gov

erned and construed by State laws. Their acquisition

and transfer of property, their right to collect their

debts, and their liability to be sued for debts, are all

based on State law. It is only when the State law in

capacitates the banks from discharging their duties to

the government that it becomes unconstitutional.” Na

tional Bank v. Commonwealth, 9 Wall. 353, 362 (1870)

(emphasis added).4

Until today, we have remained faithful to the principle

that nondiscriminatory laws of general application that do

not “forbid” or “impair significantly” national bank activi

ties should not be preempted. See, e.g., Barnett Bank of

Marion Cty., N. A. v. Nelson, 517 U. S. 25, 33 (1996).5

Nor is the Court alone in recognizing the vital role that

state legislation plays in the dual banking system. Al

——————

4 See also McClellan v. Chipman, 164 U. S. 347, 357 (1896) (explain

ing that our cases establish “a rule and an exception, the rule being the

operation of general state laws upon the dealings and contracts of

national banks, the exception being the cessation of the operation of

such laws whenever they expressly conflict with the laws of the United

States or frustrate the purpose for which the national banks were

created, or impair their efficiency to discharge the duties imposed upon

them by the law of the United States”).

5 See also Anderson Nat. Bank v. Luckett, 321 U. S. 233, 248 (1944)

(“This Court has often pointed out that national banks are subject to

state laws, unless those laws infringe the national banking laws or

impose an undue burden on the performance of the banks’ functions”);

Davis v. Elmira Savings Bank, 161 U. S. 275, 290 (1896) (“Nothing, of

course, in this opinion is intended to deny the operation of general and

undiscriminating state laws on the contracts of national banks, so long

as such laws do not conflict with the letter or the general objects and

purposes of Congressional legislation”)

4 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

though the dual banking system’s main virtue is its diver

gent treatment of national and state banks,6 Congress has

consistently recognized that state law must usually govern

the activities of both national and state banks for the dual

banking system to operate effectively. As early as 1934,

Justice Brandeis observed for the Court that this congres

sional recognition is embodied in a long string of statutes:

“The policy of equalization was adopted in the Na

tional Bank Act of 1864, and has ever since been ap

plied, in the provision concerning taxation. In

amendments to that act and in the Federal Reserve

Act and amendments thereto the policy is expressed

in provisions conferring power to establish branches;

in those conferring power to act as fiduciary; in those

concerning interest on deposits; and in those concern

ing capitalization. It appears also to have been of

some influence in securing the grant in 1913 of the

power to loan on mortgage.” Lewis v. Fidelity & De

posit Co. of Md., 292 U. S. 559, 564–565 (footnotes,

with citations to relevant statutes, omitted).7

For the same reasons, we observed in First Nat. Bank in

Plant City v. Dickinson, 396 U. S. 122, 133 (1969), that

“[t]he policy of competitive equality is . . . firmly embedded

in the statutes governing the national banking system.”

So firmly embedded, in fact, that “the congressional policy

of competitive equality with its deference to state stan

dards” is not “open to modification by the Comptroller of

the Currency.” Id., at 138.

——————

6 See Scott, The Dual Banking System: A Model of Competition in

Regulation, 30 Stan. L. Rev. 1, 8–13 (1978) (explaining the perceived

benefits of the dual banking system).

7 See also First Nat. Bank of Logan v. Walker Bank & Trust Co., 385

U. S. 252, 261 (1966) (observing that in passing the McFadden Act,

“Congress was continuing its policy of equalization first adopted in the

National Bank Act of 1864”).

Cite as: 550 U. S. ____ (2007) 5

STEVENS, J., dissenting

II

Although the dual banking system has remained intact,

Congress has radically transformed the national bank

system from its Civil War antecedent and brought consid

erably more federal authority to bear on state-chartered

institutions. Yet despite all the changes Congress has

made to the national bank system, and despite its exercise

of federal power over state banks, it has never preempted

state laws like those at issue in this case.

Most significantly, in 1913 Congress established the

Federal Reserve System to oversee federal monetary

policy through its influence over the availability of credit.

Federal Reserve Act §§2, 9, 38 Stat. 252, 259. The Act

required national banks and permitted state banks to

become Federal Reserve member banks, and subjected all

member banks to Federal Reserve regulations and over

sight. Ibid. Also of signal importance, after the banking

system collapsed during the Great Depression, Congress

required all member banks to obtain deposit insurance

from the newly established Federal Deposit Insurance

Corporation. Banking Act of 1933 (or Glass-Steagall Act),

§8, 48 Stat. 168; see also Banking Act of 1935, 49 Stat.

684. Although both of these steps meant that many state

banks were subjected to significant federal regulation,8

“the state banking system continued along with the na

tional banking system, with no attempt to exercise pre

emptive federal regulatory authority over the activities of

the existing state banks.” M. Malloy, Banking and Finan

cial Services Law 48 (2d ed. 2005).

In addition to these systemic overhauls, Congress has

——————

8 What has emerged are “two interrelated systems in which most

state-chartered banks are subject to varying degrees of federal regula

tion, and where state laws are made applicable, to a varying extent, to

federally-chartered institutions.” 1 A. Graham, Banking Law §1.04,

p. 1–12 (Nov. 2006).

6 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

over time modified the powers of national banks. The

changes are too various to recount in detail, but two are of

particular importance to this case. First, Congress has

gradually relaxed its prohibition on mortgage lending by

national banks. In 1913, Congress permitted national

banks to make loans secured by farm land, Federal Re

serve Act, §24, 38 Stat. 273, and in succeeding years, their

mortgage-lending power was enlarged to cover loans on

real estate in the vicinity of the bank, Act of Sept. 7, 1916,

39 Stat. 754, and loans “secured by first liens upon forest

tracts which are properly managed in all respects,” Act of

Aug. 15, 1953, ch. 510, 67 Stat. 614. Congress substan

tially expanded national banks’ power to make real estate

loans in 1974, see Housing and Community Development

Act, Title VII, §711, 88 Stat 716, and in 1982 it enacted

the broad language, now codified at 12 U. S. C. §371(a),

authorizing national banks to make “loans . . . secured by

liens on interests in real estate.” Garn-St Germain De

pository Institutions Act of 1982, Title IV, §403, 96 Stat.

1510. While these changes have enabled national banks

to engage in more evenhanded competition with state

banks, they certainly reflect no purpose to give them any

competitive advantage.9

Second, Congress has over the years both curtailed and

expanded the ability of national banks to affiliate with

other companies. In the early part of the century, banks

routinely engaged in investment activities and affiliated

with companies that did the same. The Glass-Steagall Act

put an end to that. “[E]nacted in 1933 to protect bank

depositors from any repetition of the widespread bank

——————

9 It is noteworthy that the principal cases that the Court cites to sup

port its conclusion that the federal statute itself preempts the Michigan

laws were decided years before Congress authorized national banks to

engage in mortgage lending and years before the Office of the Comp

troller of the Currency (OCC) authorized their use of operating subsidi

aries. See ante, at 6, 9.

Cite as: 550 U. S. ____ (2007) 7

STEVENS, J., dissenting

closings that occurred during the Great Depression,”

Board of Governors, FRS v. Investment Company Institute,

450 U. S. 46, 61 (1981), Glass-Steagall prohibited Federal

Reserve member banks (both state and national) from

affiliating with investment banks.10 In Congress’ view,

the affiliates had engaged in speculative activities that in

turn contributed to commercial banks’ Depression-era

failures.11 It was this focus on the welfare of depositors—

as opposed to stockholders—that provided the basis for

legislative action designed to ensure bank solvency.

A scant two years later, Congress forbade national

banks from owning the shares of any company because of

a similar fear that such ownership could undermine the

safety and soundness of national banks:12 “Except as

hereinafter provided or otherwise permitted by law, noth

ing herein contained shall authorize the purchase by [a

national bank] for its own account of any shares of stock of

any corporation.” Banking Act of 1935, §308(b), 49 Stat.

709 (emphasis added). That provision remains on the

books today. See 12 U. S. C. §24 Seventh.

These congressional restrictions did not forbid all affilia

tions, however, and national banks began experimenting

with new corporate forms. One of those forms involved the

——————

10 In Investment Company Institute v. Camp, 401 U. S. 617 (1971), we

set aside a regulation issued by the Comptroller of the Currency au

thorizing banks to operate collective investment funds because that

activity was prohibited by the Glass-Steagall Act. Similarly, in Securi

ties Industry Assn. v. Board of Governors, FRS, 468 U. S. 137 (1984),

the Glass-Steagall Act provided the basis for invalidating a regulation

authorizing banks to enter the business of selling third-party commer

cial paper.

11 See J. Macey, G. Miller, & R. Carnell, Banking Law and Regulation

21 (3d ed. 2001) (describing “the alleged misdeeds of the large banks’

securities affiliates and the ways in which such affiliations could

promote unsound lending, irresponsible speculation, and conflicts of

interest”).

12 See 31 Fed. Reg. 11459 (1966).

8 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

national bank ownership of “operating subsidiaries.” In

1966, the Comptroller of the Currency took the position

“that a national bank may acquire and hold the controlling

stock interest in a subsidiary operations corporation” so

long as that corporation’s “functions or activities . . . are

limited to one or several of the functions or activities that

a national bank is authorized to carry on.” 31 Fed. Reg.

11459 (1966). The Comptroller declined to read the cate

gorical prohibition on national bank ownership of stock to

foreclose bank ownership of operating subsidiaries, finding

authority for this aggressive interpretation of national

bank authority in the “incidental powers” provision of 12

U. S. C. §24 Seventh. See 31 Fed. Reg. 11460.

While Congress eventually restricted some of the new

corporate structures,13 it neither disavowed nor endorsed

the Comptroller’s position on national bank ownership of

operating subsidiaries. Notwithstanding the congres

sional silence, in 1996 the OCC once again attempted to

expand national banks’ ownership powers. The agency

issued a regulation permitting national bank operating

subsidiaries to undertake activities that the bank was not

allowed to engage in directly. 12 CFR §§5.34(d), (f) (1997)

(authorizing national banks to “acquire or establish an

operating subsidiary to engage in [activities] different

from that permissible for the parent national bank,” so

long as those activities are “part of or incidental to the

business of banking, as determined by the Comptroller of

the Currency”); see also 61 Fed. Reg. 60342 (1996).

Congress overruled this OCC regulation in 1999 in the

Gramm-Leach-Bliley Act (GLBA), 113 Stat. 1338. The

GLBA was a seminal piece of banking legislation inas

much as it repealed the Glass-Steagall Act’s ban on affilia

tions between commercial and investment banks. See

——————

13 See Bank Holding Company Act of 1956, 70 Stat. 133; Bank Hold

ing Company Act Amendments of 1970, 84 Stat. 1760.

Cite as: 550 U. S. ____ (2007) 9

STEVENS, J., dissenting

§101, id., at 1341. More relevant to this case, however,

the GLBA addressed the powers of national banks to own

subsidiary corporations. The Act provided that any na

tional bank subsidiary engaging in activities forbidden to

the parent bank would be considered a “financial subsidi

ary,” §121, id., at 1380, and would be subjected to height

ened regulatory obligations, see, e.g., 12 U. S. C. §371c–

1(a)(1). The GLBA’s definition of “financial subsidiaries”

excluded those subsidiaries that “engag[e] solely in activi

ties that national banks are permitted to engage in di

rectly and are conducted subject to the same terms and

conditions that govern the conduct of such activities by

national banks.” §24a(g)(3).

By negative implication, then, only subsidiaries engag

ing in purely national bank activities—which the OCC had

termed “operating subsidiaries,” but which the GLBA

never mentions by name—could avoid being subjected to

the restrictions that applied to financial subsidiaries.

Compare §371c(b)(2) (exempting subsidiaries from certain

regulatory restrictions) with §371c(e) (clarifying that

financial subsidiaries are not to be treated as “subsidiar

ies”). Taken together, these provisions worked a rejection

of the OCC’s position that an operating subsidiary could

engage in activities that national banks could not engage

in directly.14 See §24a(g)(3). Apart from this implicit

rejection of the OCC’s 1996 regulation, however, the

GLBA does not even mention operating subsidiaries.

——————

14 While the statutory text provides ample support for this conclusion,

it is noteworthy that it was so understood by contemporary commenta

tors. See, e.g., 145 Cong. Rec. 29681 (1999) (“Recently, the Comptroller

of the Currency has interpreted section 24 (Seventh) of the National

Bank Act to permit national banks to own and control subsidiaries

engaged in activities that national banks cannot conduct directly.

These decisions and the legal reasoning therein are erroneous and

contrary to the law. The [GLBA] overturns these decisions . . . .”

(statement of Representative Bliley)).

10 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

In sum, Congress itself has never authorized national

banks to use subsidiaries incorporated under state law to

perform traditional banking functions. Nor has it author

ized OCC to “license” any state-chartered entity to do so.

The fact that it may have acquiesced in the OCC’s expan

sive interpretation of its authority is a plainly insufficient

basis for finding preemption.

III

It is familiar learning that “[t]he purpose of Congress is

the ultimate touchstone of pre-emption analysis.” Cipol

lone v. Liggett Group, Inc., 505 U. S. 504, 516 (1992) (in

ternal quotation marks omitted). In divining that con

gressional purpose, I would have hoped that the Court

would hew both to the NBA’s text and to the basic rule,

central to our federal system, that “[i]n all pre-emption

cases . . . we ‘start with the assumption that the historic

police powers of the States were not to be superseded by

the Federal Act unless that was the clear and manifest

purpose of Congress.’ ” Medtronic, Inc. v. Lohr, 518 U. S.

470, 485 (1996) (quoting Rice v. Santa Fe Elevator Corp.,

331 U. S. 218, 230 (1947)). Had it done so, it could have

avoided the untenable conclusion that Congress meant the

NBA to preempt the state laws at issue here.

The NBA in fact evinces quite the opposite congressional

purpose. It provides in 12 U. S. C. §484(a) that “[n]o

national bank shall be subject to any visitorial powers

except as authorized by Federal law.” Although this ex

emption from state visitorial authority has been in place

for more than 140 years, see §54, 13 Stat. 116 (national

banks “shall not be subject to any other visitorial powers

than such as are authorized by this act”), it is significant

that Congress has never extended 12 U. S. C. §484(a)’s

preemptive blanket to cover national bank subsidiaries.

This is not, contrary to the Court’s suggestion, see ante,

at 14–15, some kind of oversight. As the complex history

Cite as: 550 U. S. ____ (2007) 11

STEVENS, J., dissenting

of the banking laws demonstrates, Congress has legislated

extensively with respect to national bank “affiliates”—an

operating subsidiary is one type of affiliate15—and has

moreover given the OCC extensive supervisory powers

over those affiliates, see §481 (providing that a federal

examiner “shall have power to make a thorough examina

tion of all the affairs of [a national bank] affiliate, and in

doing so he shall have power . . . to make a report of his

findings to the Comptroller of the Currency”). That Con

gress lavished such attention on national bank affiliates

and conferred such far-reaching authority on the OCC

without ever expanding the scope of §484(a) speaks vol

umes about Congress’ preemptive intent, or rather its lack

thereof. Consistent with our presumption against pre

emption—a presumption I do not understand the Court to

reject—I would read §484(a) to reflect Congress’ consid

ered judgment not to preempt the application of state

visitorial laws to national bank “affiliates.”

Instead, the Court likens §484(a) to a congressional

afterthought, musing that it merely “recogniz[es] the

burdens and undue duplication that state controls could

produce.” Ante, at 9. By that logic, I take it the Court

believes that the NBA would impliedly preempt all state

visitorial laws as applied to national banks even if §484(a)

did not exist. That is surprising and unlikely. Not only

would it reduce the NBA’s express preemption provision to

so much surplusage, but it would give Congress’ silence

greater statutory dignity than an express command.

Perhaps that explains why none of the four Circuits to

have addressed this issue relied on the preemptive force of

the NBA itself. Each instead asked whether the OCC’s

regulations preempted state laws.16 Stranger still, the

——————

15 See 12 U. S. C. §221a(b) (defining affiliates to include “any corpora

tion” that a federal member bank owns or controls).

16 See National City Bank of Indiana v. Turnbaugh, 463 F. 3d 325,

12 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

Court’s reasoning would suggest that operating subsidiar

ies have been exempted from state visitorial authority

from the moment the OCC first authorized them in 1966.

See 31 Fed. Reg. 11459. Yet if that were true, surely at

some point over the last 40 years some national bank

would have gone to court to spare its subsidiaries from the

yoke of state regulation; national banks are neither heed

less of their rights nor shy of litigation. But respondents

point us to no such cases that predate the OCC’s preemp

tion regulations.

The Court licenses itself to ignore §484(a)’s limits by

reasoning that “when state prescriptions significantly

impair the exercise of authority, enumerated or incidental

under the NBA, the State’s regulations must give way.”

Ante, at 7. But it intones this “significant impairment”

refrain without remembering that it merely provides a

useful tool—not the only tool, and not even the best tool—

to discover congressional intent. As we explained in Bar

nett Bank, this Court “take[s] the view that normally

Congress would not want States to forbid, or to impair

significantly, the exercise of a power that Congress has

explicitly granted.” 517 U. S., at 33 (emphasis added).

But any assumption about what Congress “normally”

wants is of little moment when Congress has said exactly

what it wants.

The Court also puts great weight on Barnett Bank’s

reference to our “history . . . of interpreting grants of both

enumerated and incidental ‘powers’ to national banks as

grants of authority not normally limited by, but rather

ordinarily pre-empting, contrary state law.” Id., at 32.

The Court neglects to mention that Barnett Bank is quite

——————

331–334 (CA4 2006) (holding that State law conflicted with OCC

regulations, not with the NBA); Wachovia Bank, N. A. v. Burke, 414 F.

3d 305, 315–316 (CA2 2005) (same); 431 F. 3d 556, 560–563 (CA6 2005)

(case below) (same); Wells Fargo Bank, N. A. v. Boutris, 419 F. 3d 949,

962–967 (CA9 2005) (same).

Cite as: 550 U. S. ____ (2007) 13

STEVENS, J., dissenting

clear that this interpretive rule applies only when Con

gress has failed (as it often does) to manifest an explicit

preemptive intent. Id., at 31. “In that event, courts must

consider whether the federal statute’s ‘structure and

purpose,’ or nonspecific statutory language, nonetheless

reveal a clear, but implicit, pre-emptive intent.” Ibid.

(emphasis added). Barnett Bank nowhere holds that we

can ignore strong indicia of congressional intent whenever

a state law arguably trenches on national bank powers.

After all, the case emphasized that the question of pre

emption “is basically one of congressional intent. Did

Congress, in enacting the Federal Statute, intend to exer

cise its constitutionally delegated authority to set aside

the laws of a State?” Id., at 30. The answer here is a

resounding no.

Even if it were appropriate to delve into the significant

impairment question, the history of this very case con

firms that neither the Mortgage Brokers, Lenders, and

Services Licensing Act, Mich. Comp. Laws Ann. §445.1651

et seq. (West 2002 and Supp. 2006), nor the Secondary

Mortgage Loan Act, §493.51 et seq. (West 2005), conflicts

with “the letter or the general objects and purposes of

Congressional legislation.” Davis v. Elmira Savings Bank,

161 U. S. 275, 290 (1896). Enacted to protect consumers

from mortgage lending abuses, the Acts require mortgage

brokers, mortgage servicers, and mortgage lenders to

register with the State, §§445.1652(1) (West Supp. 2006),

493.52(1) (West 2005), to submit certain financial state

ments, §§445.1657(2) (West 2002), 493.56a(2) (West 2005),

and to submit to state visitorial oversight, §§445.1661

(West 2002), 493.56b (West 2005). Because the Acts ex

pressly provide that they do not apply to “depository fi

nancial institution[s],” §445.1675(a) (West 2002), neither

national nor state banks are covered.17 The statute there

——————

17 While the Court at one point observes that “the Michigan provi

14 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

fore covers only nonbank companies incorporated under

state law.18

Respondent Wachovia Mortgage Corporation has never

engaged in the core banking business of accepting depos

its. In 1997, when Wachovia Mortgage was first licensed

to do business in Michigan, it was owned by a holding

company that also owned the respondent Wachovia Bank,

N. A. (Neither the holding company nor the Bank did

business in Michigan.) There is no evidence, and no rea

son to believe, that compliance with the Michigan statutes

imposed any special burdens on Wachovia Mortgage’s

activities, or that the transfer in 2003 of its ownership

from the holding company to the Bank required it to make

any changes whatsoever in its methods of doing business.

Neither before nor after that transfer was there any dis

cernible federal interest in granting the company immu

nity from regulations that applied evenhandedly to its

competitors. The mere fact that its activities may also be

performed by its banking parent provides at best a feeble

justification for immunizing it from state regulation. And

it is a justification that the longstanding congressional

“policy of competitive equality” clearly outweighs. See

Plant City, 396 U. S., at 133.

Again, however, it is beside the point whether in the

Court’s judgment the Michigan laws will hamper national

banks’ ability to carry out their banking functions through

operating subsidiaries. It is Congress’ judgment that

matters here, and Congress has in the NBA preempted

——————

sions at issue exempt national banks from coverage,” see ante, 8, that is

because they are “banks,” not because they are “national.” See ante, at

2–3 (noting that “Michigan’s statutory regime exempts banks, both

national and state, from state mortgage lending regulation” (emphasis

added)).

18 The Michigan laws focus on consumer protection, whereas the OCC

regulations quoted by the Court focus on protection of bank depositors.

See ante, at 7, n. 4, and 11, n. 8.

Cite as: 550 U. S. ____ (2007) 15

STEVENS, J., dissenting

only those laws purporting to lodge with state authorities

visitorial power over national banks. 12 U. S. C. §484(a).

In my view, the Court’s eagerness to infuse congressional

silence with preemptive force threatens the vitality of

most state laws as applied to national banks—a result at

odds with the long and unbroken history of dual state and

federal authority over national banks, not to mention our

federal system of government. It is especially troubling

that the Court so blithely preempts Michigan laws de

signed to protect consumers. Consumer protection is

quintessentially a “field which the States have tradition

ally occupied,” Rice, 331 U. S., at 230;19 the Court should

therefore have been all the more reluctant to conclude that

the “clear and manifest purpose of Congress” was to set

aside the laws of a sovereign State, ibid.

IV

Respondents maintain that even if the NBA lacks pre

emptive force, the GLBA’s use of the phrase “same terms

and conditions” reflects a congressional intent to preempt

state laws as they apply to the mortgage lending activities

of operating subsidiaries. See 12 U. S. C. §24a(g)(3).

Indeed, the Court obliquely suggests as much, salting its

analysis of the NBA with references to the GLBA. See

ante, at 13, 15. Even a cursory review of the GLBA’s text

shows that it cannot bear the preemptive weight respon

dents (and perhaps the Court) would assign to it.

The phrase “same terms and conditions” appears in the

definition of “financial subsidiary,” not in a provision of

the statute conferring national bank powers. Even there,

it serves only to describe what a financial subsidiary is

not. See §24a(g)(3) (defining financial subsidiary as any

——————

19 Seealso General Motors Corp. v. Abrams, 897 F. 2d 34, 41–43 (CA2

1990) (“Because consumer protection law is a field traditionally regu

lated by the states, compelling evidence of an intention to preempt is

required in this area”).

16 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

subsidiary “other than a subsidiary that . . . engages solely

in activities that national banks are permitted to engage

in directly and are conducted subject to the same terms

and conditions that govern the conduct of such activities

by national banks”). Apart from this slanting reference,

the GLBA never mentions operating subsidiaries. Far

from a demonstration that the “clear and manifest pur

pose of Congress” was to preempt the type of law at issue

here, Rice, 331 U. S., at 230, the “same terms and condi

tions” language at most reflects an uncontroversial ac

knowledgment that operating subsidiaries of national

banks are subject to the same federal oversight as their

national bank parents.20 It has nothing to do with

preemption.

Congress in fact disavowed any such preemptive intent.

Section 104 of the GLBA is titled “Operation of State

Law,” 113 Stat. 1352, and it devotes more than 3,000

words to explaining which state laws Congress meant the

GLBA to preempt. Leave aside the oddity of a Congress

that addresses preemption in exquisite detail in one provi

sion of the GLBA but (according to respondents) uses only

four words to express a preemptive intent elsewhere in the

statute. More importantly, §104(d)(4) provides that “[n]o

State statute . . . shall be preempted” by the GLBA unless

that statute has a disparate impact on federally chartered

depository institutions, “prevent[s] a depository institution

or affiliate thereof from engaging in activities authorized

or permitted by this Act,” or “conflict[s] with the intent of

this Act generally to permit affiliations that are author

ized or permitted by Federal law.” Id., at 1357 (emphasis

added) (codified at 15 U. S. C. §6701(d)(4)). No one claims

that the Michigan laws at issue here are discriminatory,

forbid affiliations, or “prevent” any operating subsidiary

——————

20 See 31 Fed. Reg. 11460 (noting that OCC maintains regulatory

oversight of operating subsidiaries).

Cite as: 550 U. S. ____ (2007) 17

STEVENS, J., dissenting

from engaging in banking activities. It necessarily follows

that the GLBA does not preempt them.

Even assuming that the phrase has something to do

with preemption, it is simply not the case that the nonen

croachment of state regulation is a “term and condition” of

engagement in the business of banking. As a historical

matter, state laws have always applied to national banks

and have often encroached on the business of banking.

See National Bank, 9 Wall., at 362 (observing that na

tional banks “are subject to the laws of the State, and are

governed in their daily course of business far more by the

laws of the State than of the nation”). The Court itself

acknowledges that state usury, contract, and property law

govern the activities of national banks and their subsidiar

ies, ante, at 6, notwithstanding that they vary across “all

States in which the banks operate,” ante, at 8. State law

has always provided the legal backdrop against which

national banks make real estate loans, and “[t]he fact that

the banking agencies maintain a close surveillance of the

industry with a view toward preventing unsound practices

that might impair liquidity or lead to insolvency does not

make federal banking regulation all-pervasive.” United

States v. Philadelphia Nat. Bank, 374 U. S. 321, 352

(1963).

V

In my view, the most pressing questions in this case are

whether Congress has delegated to the Comptroller of the

Currency the authority to preempt the laws of a sovereign

State as they apply to operating subsidiaries, and if so,

whether that authority was properly exercised here. See

12 CFR §7.4006 (2006) (“State laws apply to national bank

operating subsidiaries to the same extent that those laws

apply to the parent national bank”). Without directly

answering either question, the Court concludes that pre

emption is the “necessary consequence” of various con

gressional statutes. Ante, at 15. Because I read those

18 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

statutes differently, I must consider (as did the four Cir

cuits to have addressed this issue) whether an administra

tive agency can assume the power to displace the duly

enacted laws of a state legislature.

To begin with, Congress knows how to authorize execu

tive agencies to preempt state laws.21 It has not done so

here. Nor does the statutory provision authorizing banks

to engage in certain lines of business that are “incidental”

to their primary business of accepting and managing the

funds of depositors expressly or implicitly grant the OCC

the power to immunize banks or their subsidiaries from

state regulation.22 See 12 U. S. C. §24 Seventh. For there

is a vast and obvious difference between rules authorizing

or regulating conduct and rules granting immunity from

regulation. The Comptroller may well have the authority

to decide whether the activities of a mortgage broker, a

real estate broker, or a travel agent should be character

ized as “incidental” to banking, and to approve a bank’s

——————

21 See,e.g., 47 U. S. C. §§253(a), (d) (authorizing the Federal Commu

nications Commission to preempt “any [state] statute, regulation, or

legal requirement” that “may prohibit or have the effect of prohibiting

the ability of any entity to provide any interstate or intrastate tele

communications service”); 30 U. S. C. §1254(g) (preempting any statute

that conflicts with “the purposes and the requirements of this chapter”

and permitting the Secretary of the Interior to “set forth any State law

or regulation which is preempted and superseded”); 49 U. S. C.

§5125(d) (authorizing the Secretary of Transportation to decide

whether a state or local statute that conflicts with the regulation of

hazardous waste transportation is preempted).

22 Congress did make an indirect reference to regulatory preemption

in the Riegle-Neal Interstate Banking and Branching Efficiency Act of

1994, §114, 108 Stat. 2367 (codified at 12 U. S. C. §43(a)). The Riegle-

Neal Act requires the OCC to jump through additional procedural

hoops (specifically, notice and comment, even for opinion letters and

interpretive rules) before “conclud[ing] that Federal law preempts the

application to a national bank of any State law regarding community

reinvestment, consumer protection, fair lending, or the establishment of

intrastate branches.” Ibid. By its own terms, however, this provision

granted no preemption authority to the OCC.

Cite as: 550 U. S. ____ (2007) 19

STEVENS, J., dissenting

entry into those businesses, either directly or through its

subsidiaries. See, e.g., NationsBank of N. C., N. A. v.

Variable Annuity Life Ins. Co., 513 U. S. 251, 258 (1995)

(upholding the OCC’s interpretation of the “incidental

powers” provision to permit national banks to serve as

agents in annuity sales). But that lesser power does not

imply the far greater power to immunize banks or their

subsidiaries from state laws regulating the conduct of

their competitors.23 As we said almost 40 years ago, “the

congressional policy of competitive equality with its defer

ence to state standards” is not “open to modification by the

Comptroller of the Currency.” Plant City, 396 U. S., at

138.24

——————

23 In a recent adoption of a separate preemption regulation, the OCC

located the source of its authority to displace state laws in 12

U. S. C. §§93a and 371. See 69 Fed. Reg. 1908 (2004). Both provisions

are generic authorizations of rulemaking authority, however, and

neither says a word about preemption. See 12 U. S. C. §93a (“[T]he

Comptroller of the Currency is authorized to prescribe rules and

regulations to carry out the responsibilities of the office”); §371(a)

(authorizing national banks to make real estate loans “subject to . . .

such restrictions and requirements as the Comptroller of the Currency

may prescribe by regulation or order”). Needless to say, they provide

no textual foundation for the OCC’s assertion of preemption authority.

24 This conclusion does not touch our cases holding that a properly

promulgated agency regulation can have a preemptive effect should it

conflict with state law. See Hillsborough County v. Automated Medical

Laboratories, Inc., 471 U. S. 707, 713 (1985) (“We have held repeatedly

that state laws can be pre-empted by federal regulations as well as by

federal statutes”); see also Fidelity Fed. Sav. & Loan Assn. v. De la

Cuesta, 458 U. S. 141, 154–159 (1982) (holding that a regulation

authorizing federal savings-and-loan associations to include due-on-sale

clauses in mortgage contracts conflicted with a state-court doctrine that

such clauses were unenforceable); City of New York v. FCC, 486 U. S.

57, 59, 65–70 (1988) (finding that the FCC’s adoption of “regulations

that establish technical standards to govern the quality of cable televi

sion signals” preempted local signal quality standards). My analysis is

rather confined to agency regulations (like the one at issue here) that

“purpor[t] to settle the scope of federal preemption” and “reflec[t] an

agency’s effort to transform the preemption question from a judicial

20 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

Were I inclined to assume (and I am not) that congres

sional silence should be read as a conferral of preemptive

authority, I would not find that the OCC has actually

exercised any such authority here. When the agency

promulgated 12 CFR §7.4006, it explained that “[t]he

section itself does not effect preemption of any State law; it

reflects the conclusion we believe a Federal court would

reach, even in the absence of the regulation . . . .” 66 Fed.

Reg. 34790 (2001) (emphasis added). Taking the OCC at

its word, then, §7.4006 has no preemptive force of its own,

but merely predicts how a federal court’s analysis will

proceed.

Even if the OCC did intend its regulation to preempt the

state laws at issue here, it would still not merit Chevron

deference. No case from this Court has ever applied such

a deferential standard to an agency decision that could so

easily disrupt the federal-state balance. To be sure, expert

agency opinions as to which state laws conflict with a

federal statute may be entitled to “some weight,” espe

cially when “the subject matter is technical” and “the

relevant history and background are complex and exten

sive.” Geier v. American Honda Motor Co., 529 U. S. 861,

883 (2000). But “[u]nlike Congress, administrative agen

cies are clearly not designed to represent the interests of

States, yet with relative ease they can promulgate com

prehensive and detailed regulations that have broad pre

emption ramifications for state law.” Id., at 908

(STEVENS, J., dissenting).25 For that reason, when an

agency purports to decide the scope of federal preemption,

a healthy respect for state sovereignty calls for something

——————

inquiry into an administrative fait accompli.” See Note, The Unwar

ranted Regulatory Preemption of Predatory Lending Laws, 79

N. Y. U. L. Rev. 2274, 2289 (2004).

25 See also Mendelson, Chevron and Preemption, 102 Mich. L. Rev.

737, 779–790 (2003–2004) (arguing that agencies are generally insensi

tive to federalism concerns).

Cite as: 550 U. S. ____ (2007) 21

STEVENS, J., dissenting

less than Chevron deference. See 529 U. S., at 911–912;

see also Medtronic, 518 U. S., at 512 (O’Connor, J., concur

ring in part and dissenting in part) (“It is not certain that

an agency regulation determining the pre-emptive effect of

any federal statute is entitled to deference”).

In any event, neither of the two justifications the OCC

advanced when it promulgated 12 CFR §7.4006 withstand

Chevron analysis. First, the OCC observed that the GLBA

“expressly acknowledged the authority of national banks

to own subsidiaries” that conduct national bank activities

“ ‘subject to the same terms and conditions that govern the

conduct of such activities by national banks.’ ” 66 Fed.

Reg. 34788 (quoting 12 U. S. C. §24a(g)(3)). The agency

also noted that it had folded the “ ‘same terms and condi

tions’ ” language into an implementing regulation, 66 Fed.

Reg. 34788 (citing 12 CFR §5.34(e)(3) (2001)). According

to the OCC, “[a] fundamental component of these descrip

tions of the characteristics of operating subsidiaries in

GLBA and the OCC’s rule is that state laws apply to

operating subsidiaries to the same extent as they apply to

the parent national bank.” 66 Fed. Reg. 34788.

This is incorrect. As explained above, the GLBA’s off

hand use of the “same terms and conditions” language

says nothing about preemption. See supra, at 15–17. Nor

can the OCC’s incorporation of that language into a regu

lation support the agency’s position: “Simply put, the

existence of a parroting regulation does not change the

fact that the question here is not the meaning of the regu

lation but the meaning of the statute.” Gonzales v. Ore

gon, 546 U. S. 243, 257 (2006). The OCC’s argument to

the contrary is particularly surprising given that when it

promulgated its “same terms and conditions” regulation, it

said not one word about preemption or the federalism

implications of its rule—an inexplicable elision if a “fun

damental component” of the phrase is the need to operate

unfettered by state oversight. Compare 65 Fed. Reg.

22 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

12905–12910 (2000), with Exec. Order No. 13132, §§2, 4,

64 Fed. Reg. 43255, 43257 (1999) (requiring agencies to

explicitly consider the “federalism implications” of their

chosen policies and to hesitate before preempting state

laws).

Second, the OCC describes operating subsidiaries “as

the equivalent of departments or divisions of their parent

banks,” 66 Fed. Reg. 34788, which, through the operation

of 12 U. S. C. §484(a), would not be subject to state visito

rial powers. The OCC claims that national banks might

desire to conduct their business through operating sub

sidiaries for the purposes of “controlling operations costs,

improving effectiveness of supervision, more accurate

determination of profits, decentralizing management

decisions [and] separating particular operations of the

bank from other operations.” Brief for United States as

Amicus Curiae 19 (quoting 31 Fed. Reg. 11460). It is

obvious, however, that a national bank could realize all of

those benefits through the straightforward expedient of

dissolving the corporation and making it in fact a “de

partment” or a “division” of the parent bank.

Rather, the primary advantage of maintaining an oper

ating subsidiary as a separate corporation is that it

shields the national bank from the operating subsidiaries’

liabilities. United States v. Bestfoods, 524 U. S. 51, 61

(1998) (“It is a general principle of corporate law deeply

ingrained in our economic and legal systems that a parent

corporation . . . is not liable for the acts of its subsidiary”

(internal quotation marks omitted)). For that reason, the

OCC’s regulation is about far more than mere “corporate

structure,” ante, at 13, or “internal governance,” ante, at

17 (citing Wells Fargo Bank, N. A. v. Boutris, 419 F. 3d

949, 960 (CA9 2005)); see also Dole Food Co. v. Patrickson,

538 U. S. 468, 474 (2003) (“In issues of corporate law

structure often matters”). It is about whether a state

corporation can avoid complying with state regulations,

Cite as: 550 U. S. ____ (2007) 23

STEVENS, J., dissenting

yet nevertheless take advantage of state laws insulating

its owners from liability. The federal interest in protect

ing depositors in national banks from their subsidiaries’

liabilities surely does not justify a grant of immunity from

laws that apply to competitors. Indeed, the OCC’s regula

tion may drive companies seeking refuge from state regu

lation into the arms of federal parents, harm those state

competitors who are not lucky enough to find a federal

benefactor, and hamstring States’ ability to regulate the

affairs of state corporations. As a result, the OCC’s regu

lation threatens both the dual banking system and the

principle of competitive equality that is its cornerstone.

VI

The novelty of today’s holding merits a final comment.

Whatever the Court says, this is a case about an adminis

trative agency’s power to preempt state laws. I agree with

the Court that the Tenth Amendment does not preclude

the exercise of that power. But the fact that that Amend

ment was included in the Bill of Rights should neverthe

less remind the Court that its ruling affects the allocation

of powers among sovereigns. Indeed, the reasons for

adopting that Amendment are precisely those that under

gird the well-established presumption against preemption.

With rare exception, we have found preemption only

when a federal statute commanded it, see Cipollone, 505

U. S., at 517, when a conflict between federal and state

law precluded obedience to both sovereigns, see Florida

Lime & Avocado Growers, Inc. v. Paul, 373 U. S. 132, 142–

143 (1963), or when a federal statute so completely occu

pied a field that it left no room for additional state regula

tion, see Napier v. Atlantic Coast Line R. Co., 272 U. S.

605, 613 (1926). Almost invariably the finding of preemp

tion has been based on this Court’s interpretation of statu

tory language or of regulations plainly authorized by

Congress. Never before have we endorsed administrative

24 WATTERS v. WACHOVIA BANK, N. A.

STEVENS, J., dissenting

action whose sole purpose was to preempt state law rather

than to implement a statutory command.

Accordingly, I respectfully dissent.