“Benefits of Dual Banking System Supervision in Uncharted Waters”

Conference of State Bank Supervisors
President and CEO Brandon Milhorn
Keynote Remarks
Federal Reserve Bank of Atlanta
Banking Outlook Conference
Feb. 27, 2025

Introduction

Thank you for that kind introduction. I would like to thank President Raphael Bostic and the Atlanta Fed for the invitation to participate in this important and timely conversation. 

Someone . . . who is clearly clairvoyant . . . gave a title to this session a few months ago: “Benefits of Dual Banking System Supervision in Uncharted Waters.” 

These are certainly interesting times for the dual banking system, and the waters do seem a little turbulent and choppy at the moment. But perhaps they are not completely uncharted:

Jefferson and Hamilton….

Jackson and the Second National Bank….

Lincoln, the National Bank Act, and the OCC….

The creation of the Federal Reserve System and the FDIC….

And, since then, nearly endless debates about the appropriate role of the states and the federal government in the regulation and supervision of our financial system.

Since 1902, the Conference of State Bank Supervisors (CSBS) has served as the representative of state financial regulators from across the nation. Our members span all 50 states, the District of Columbia, and the territories. They charter, license, regulate, and supervise the institutions — both bank and nonbank — that provide financial services to the consumers, small businesses, and farmers that form the fabric of their local communities and, in aggregate, our nation’s economy. Our members have been fighting for the dual banking system for ages.

The Importance of the Dual Banking System

I, on the other hand, am relatively new to this centuries-old debate. Before joining the FDIC in 2018, I was a national security lawyer. I like to think that my background gives me an outsider’s perspective on the topic . . . a little intellectual neutrality . . . and, I often find myself coming back to a simple question: why does it all matter?

Now, this audience is invested in the dual banking system, and I am almost certain none of you woke up last night, in a cold sweat, and shouted, “We must protect the dual banking system!” And, I often wonder if most Americans – like my Mom and Dad in Tennessee or my two sons – even know what the dual banking system is . . . or ever consider how it impacts their lives every day.

But, it does . . . and we should talk about why that matters.

When you bought your coffee this morning, paid your mortgage last night, and set up your Amazon delivery for the weekend, you took advantage of a complex, nationwide financial infrastructure. Banks and financial institutions of all shapes and sizes, credit card issuers, mortgage originators and servicers, payment processors, and fintechs . . . any number of financial service providers played a role in these transactions. You see a debit on your bank statement and hold a product in your hand. But, behind the scenes, state and federal regulators are working to promote a safe, sound, and stable financial system and protect your rights as a consumer.

The Debate

From the beginning, there has been a fundamental . . . and sometimes awkward . . . tension between the federal government and the states on financial and economic issues. This tension derives from our Founding Fathers’ commitment to decentralized power and economic self-determination. Those core values carry over into our financial regulatory system — balancing national interests with local needs.¹

Our federal partners in Washington, D.C., have a national perspective on supervision and regulation, driven by a desire for financial stability and an underlying instinct to mitigate . . . or attempt to eliminate . . . financial risk. The states share concerns for safety, soundness, and consumer protection, but they also want their communities to grow and their local economies to thrive. 

This balancing of financial risk and economic opportunity . . . and the separate perspectives of federal and state regulators on how this balance should be appropriately struck . . . sits at the heart of the debate over the dual banking system. The disparate views of state and federal regulators create a healthy tension in the development of the rules and procedures that govern our financial system.

A Uniquely American System 

Banks, in particular, have the ability to choose how they are chartered, regulated, and supervised. State banks are chartered and overseen by state regulators, with joint supervision by the Federal Reserve or FDIC depending on whether they are Federal Reserve member banks. National banks are chartered and supervised by the OCC. The Federal Reserve also oversees bank holding companies.

Faced with this choice, 79% of banks have chosen a state charter.² These banks prefer the local perspective and accountability that accompanies their supervision by the states. They prefer a state supervisor’s understanding of local economic conditions and markets. 

Most of these state-chartered banks . . . well over 90% . . . are also community banks that have a relationship-based business model.³ They know the farmers they are lending to . . . they know the entrepreneur that is trying to open a new small business . . . they understand local economies.⁴  In one-quarter of U.S. counties, a community bank is the only physical banking presence.⁵ If small businesses are the engines of the U.S. economy, community banks are the jet fuel.⁶