July 08, 2009

A recent Supreme Court ruling strengthening the power of states to probe national banks is likely to increase red tape and lower earnings at the nation's largest financial institutions, analysts say, but supporters countered that the ruling is in line with new plans to protect consumers.On June 29, the Supreme Court ruled 5 to 4 that nationally chartered banks, regulated by the federal Office of the Comptroller of the Currency, can be charged by state attorneys general for violation of state consumer protection laws.

That new exposure to state-by-state scrutiny will hamper the profitability of the nation's largest financial institutions with inordinate compliance costs, according to industry analysts.But, the high court decision may also help smooth the way for the Obama administration to establish the newly proposed Consumer Financial Protection Agency, with oversight over mortgages and credit cards, and guidelines for simple "plan vanilla" financial products.