As we reformulate our financial regulations, battles between different levels of government are likely to be more common. Should states have the primary responsibility for regulating banks? Or should they be regulated nationally? Or perhaps we need a global regulatory body.
In one sense, some of this may prove a purely empirical argument about who did a better job in the years leading up to our current crisis. In another, however, it will be an argument about more theoretical political questions, such as whether or not its appropriate for a government of the people, by the people and for the people to cede large areas of authority to unelected bureaucrats.
The first salvo in this battle for the location of regulatory authority has been fired.
The U.S. Supreme Court agreed Friday to consider whether the New York attorney general’s office has the power to investigate whether some national banks have engaged in discriminatory mortgage lending in the state.
Two lower courts ruled that only federal regulators have the power to conduct such an investigation. New York, the courts said, couldn’t enforce its state fair-lending laws against national banks.
The New York attorney general’s office, then under the helm of Eliot Spitzer, began investigating the banks’ residential real-estate lending practices in 2005, claiming that mortgage data showed that black and Hispanic borrowers received a larger percentage of high-interest home loans than white borrowers.
Spitzer asked several banks, including Wells Fargo & Co. (WFC), J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C), to voluntarily produce non-public information about their mortgage-lending practices in New York.
In response, the federal Office of the Comptroller of the Currency and the Clearing House Association, a consortium of national banks, each sued to block Spitzer’s investigation.