Who's Watching Your Savings Account -- Debate Over Preemption May Decide
August 24, 2009
| MoneyRates.com Senior Financial Analyst, CFA
Amid all the discussion in Washington about financial reforms, there is an interesting debate going on over the subject of preemption. Preemption is a concept that is often applied to national regulatory legislation. What it basically means is that federal standards take precedence over -- or "preempt" -- any state standards with respect to the industry in question.
The idea is that this helps consumers by making sure people in every state are protected by regulatory standards, and it helps businesses by giving them one set of standards to work toward, rather than a patchwork of different state-by-state standards.
Now, some members of Congress, including House Financial Services Committee Chairman Barney Frank, want to eliminate preemption with respect to national bank legislation.
On the one hand, it could be argued that putting more emphasis on state-by-state regulation would increase the number of watchdogs protecting your savings account. On the other hand, this will complicate things for national banks and make it more expensive for them to operate -- and that means more fees and/or lower interest rates on savings accounts and other bank products.
This is a good subject for MoneyRates users to weigh in on. So what do you think? Would you feel more comfortable if your state government was given more latitude to apply its own regulatory standards to banks? Or do you feel the extra layer of regulatory oversight would not be worth the additional fees that could result? Let us know your opinion -- and if you feel strongly about it, you may want to let your representative in Congress know as well.
concerned
24 August 2009 at 1:12 pm
All government wants to do is raise money for there pet projects, they could care less if the public is protected. They instituted Preemption because of the poor regulation by the states, now that they spent all this money on recovery projects they are thinking of ways to add to the tax burden. Most of the states are almost bankrupt yet they want to jam this down our throats. I say leave it alone. I can see pretty soon the feds closing FDIC because it will be bankrupt. Yet the want to run health insurance. What a laugh.. y
jmoney
24 August 2009 at 8:28 am
In my opinion, Preemption has been over applied by the Federal Government.
When regulation is necessary, State Governments should be the ones doing the regulating. Preemption should be applied only in very special cases rather than in the broad strokes currently employed by the Federal Government.
If it makes life more difficult for cross-state entities, too bad. If the citizens of a state suffer because of their lack of regulation, then it should be up to the state to implement regulations that are appropriate for their state.
Given the "too-big-to-fail" arguments that were used during the bail-out, maybe it would be good to allow states to make it more difficult for a cross state institution to do business.
A regulator (or a politician) in Washington does not (never-ever) know what's best for my state.