Bank Charters and Forum Selection

Banks in the United States can be chartered by the federal government or the state government.  Banks, therefore, can select among multiple possible regulators.  This choice allows for the possibility of a regulatory race to the bottom.  Whether this in fact is taking place is unclear.  It seems that at least the banks that are building a national retail network all rely on a charter from the federal government, suggesting that national regulation when operating in multiple states is preferable to having a state charter. 

We raise this only to note that the two surviving independent investment banks, both of which have converted to commercial banks, have announced very different choices in where they will be chartered.  Goldman has announced that it will apply for New York state charter while Morgan has announced that it will seek a federal charter with the Office of the Comptroller. 

Assuming Goldman opts to become a member of the Federal Reserve, it will still be subject to some federal oversight.  Nonetheless, the main regulator will be New York.  There are disadvantages to state chartering, particularly with national expansion.  The Journal suggests that the move by Goldman means "that the company doesn't have immediate plans to buy or build a large, multistate retail-banking franchise, contrary to what analysts and investors have been speculating in recent weeks."

But likewise there must be regulatory advantages.  Given the current climate, one wonders whether the system ought to continue to allow banks to cherry pick their primary regulator based upon their perception of the regulatory advantages that come with the selection.