Are States Encroaching on Federal Regulatory Power in the US?

In a recent op-ed published in American Banker, former US Comptrollers of the Currency Eugene Ludwig and John Dugan argue that states are increasingly encroaching on regulatory territory historically reserved for federal banking authorities, threatening the clarity of the dual banking system.

“When Lincoln and Congress created the national banking system during the Civil War, they were responding to a fragmented financial landscape marked by inconsistent state laws and recurring instability,” they write. “Their solution was straightforward: Banks that chose a national charter would operate under a uniform federal framework rather than a maze of conflicting state requirements.”

Ludwig and Dugan argue that some states have “expanded regulatory authority in ways that reach beyond state-chartered institutions and into the operations of national banks.” Others, they add, have sought to change the definition of “unsafe or unsound” banking practices, creating potential conflicts between state and federal rules. In so doing, they contend, the states “risk undermining the very framework” that has made the national banking system we have today possible.

They urge the Office of the Comptroller of the Currency to provide clearer guidance on federal banking powers. “The national bank charter has been one of the great institutional successes of the American economy,” Ludwig and Dugan write. “Preserving its integrity is not merely a legal question but an economic imperative.”

For more from Eugene Ludwig, read his Ground Breakers interview from our 2025 Compendium.