The U.S. Court of Appeals for the Second Circuit in New York has ruled that federal law pre-empts state regulatory and visitorial authority over national banks and their subsidiaries.In Wachovia Bank NA and Wachovia Mortgage Corp. v. Burke, the Second Circuit followed a prior decision by the U.S. District Court of Connecticut and ruled in favor of the lender and the Office of the Comptroller of the Currency. The decision means states cannot require an operating subsidiary to be licensed, according to Joseph Kolar, a partner with the Washington law firm of Buckley Kolar LLP. "It really affirms the OCC's rule that it can operate through operating subsidiaries without interference from state law," said Mr. Kolar, who represented plaintiffs in the case. Connecticut Banking Commissioner John Burke said the department is very disappointed with the ruling and is "considering its options." The case could put a crimp in New York Attorney General Eliot Spitzer's probe into the lending practices used by some banks to determine interest rates and fees. The OCC has responded with a lawsuit to stop Mr. Spitzer from "interfering" in its fair-lending procedures.

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