FDIC Proposes Rule To Recognize Parity Between Out-of-State Banks and National Banks

Sep 22 2026

On 17 September 2026, the FDIC proposed to amend regulations to recognize parity between out-of-state state banks and national banks concerning the application of host state laws when an out-of-state state bank provides services in the host state with or without establishing a branch in the state (the “Proposal”). Under the current regulation, this parity applies only to any out-of-state state bank with a branch in a host state.

The FDIC explained that recent litigation involving an Illinois law concerning payment card transactions has created uncertainty as to the application of the laws of states to state-chartered banks which offer services outside their home state. The proposal states that the uncertainty will negatively affect state banks and may result in substantial disruption and confusion for the merchants. However, the amended regulation would obviously have nationwide consequences. The regulation proposed to be amended was issued to implement Section 24(j) of the Federal Deposit Insurance Act (12 USC § 1831a(j)). See 12 CFR § 331.1. The FDIC concedes in the Proposal that Section 24(j) “expressly addresses the application of state laws to a ‘branch’ in a host state of an out-of-state state bank,” but they argue that the provision “must be read in the context of the statutory framework.” They point out that it has become more common since the enactment of the statute for banks to serve their customers through non-branch channels, such as online or mobile banking. They point to comments of legislators in the Congressional Record as showing the “apparent intent” of the legislation to establish parity between interstate state banks and interstate national banks, and they argue that the Proposal “ensures consistency with the structure and purpose of” Section 24(j).

The FDIC argues that “it is clear from the statutory scheme that when host state law would not apply to an out-of-state state bank’s branch in the state (because state law has been preempted), host state law should similarly not apply to an out-of-state state bank providing services without a branch.” They also maintain that the Proposal would not constitute a determination by the FDIC that any particular host state law is preempted by federal law. However, because the initial question will always be whether host state law applies to a national bank, federal preemption by national banks will obviously be important.

The difficulty is that the statute says what it says: “The laws of a host state … shall apply to any branch in the host state of an out-of-state state bank to the same extent as such state laws apply to a branch in the host state of an out-of-state national bank.” While the FDIC makes good policy arguments, one probably should expect challenges to the Proposal based on the statutory language.

Comments on the Proposal must be received by the FDIC by no later than 23 November 2026.