A unique feature of the U.S. banking system is charter choice—the ability of a bank to choose its charter and thereby its regulator by electing to become a national bank, state member bank or state nonmember bank. That choice exists when the bank is originally chartered, but banks are also permitted to switch charters. Institutions consider a wide range of business and strategic needs when deciding on their charter. Some commenters have argued, however, that regulators are motivated by revenue or prestige incentives when determining charter conversion applications, leading them to approve charter conversions that allow banks to get more lenient treatment.
Congress addressed these concerns through Section 612 of the Dodd-Frank Act, which provides generally that a bank may not switch its charter when it is “subject to a cease and desist order,” although this prohibition is subject to several statutory exceptions.
A recent public dissent by Federal Reserve Governor Michael Barr in the conversion by United Texas Bank from a state-member bank to a national bank, effectively (and bluntly) treats Section 612 as an absolute bar on conversions.[1] In his brief dissent, Governor Barr tersely stated that, while Section 612 includes statutory exceptions, United Texas Bank failed to make a “compelling argument” that its application fell within any such exception, without further elaboration. The statute is more nuanced, and so clarification is warranted.
What the Dodd-Frank Act Says About Charter Conversions
The dissent leans heavily on Section 612’s general rule: a bank may not convert its charter while an enforcement action is outstanding.[2] The Senate Report discussing Section 612 explains that supervisors should “only consider applications undertaken for legitimate reasons and [] not entertain regulatory conversion applications that undermine the supervisory process.”[3] This report makes clear that Section 612 is not a categorical bar but a safeguard against opportunistic attempts to evade enforcement actions. Applications undertaken for legitimate reasons are permissible.
Section 612(d) reflects that principle by establishing a pathway for charter conversions where regulators align on a remediation plan.[4] Embedded in that framework is a basic expectation of interagency comity: that the new regulator will address supervisory issues with the same rigor as the regulator that first identified them. The agencies’ 2012 interagency statement implements this approach, requiring the prospective federal banking agency to develop and share a remediation plan with the current federal banking agency and, if applicable, state bank supervisor.[5] The current federal banking agency and state bank supervisors then have 30 days after receipt of the plan to object to the conversion or plan. In short, Section 612 preserves charter choice while imposing meaningful procedural and supervisory guardrails.
That design choice matters. The agencies explicitly acknowledge that “financial institutions may choose to operate under a state or federal charter that best accommodates their business and strategic needs.”[6] Section 612 preserves flexibility for conversions motivated by legitimate business or strategic reasons. There are many reasons why a bank may legitimately choose to convert its charter. A state-chartered bank operating nationwide may seek a national charter to take advantage of federal preemption or to reduce the complexity of operating under multiple state regulators. In contrast, a national bank operating primarily in one state may prefer a state charter for lower regulatory fees and greater access to local regulators. Section 612 accommodates these considerations, even where an enforcement action is in place.
What This Means in Practice
The charter conversion by United Texas Bank illustrates how this framework operates in practice. The OCC provided notice and a remediation plan to the Texas Department of Banking and the Federal Reserve, neither of which objected.[7] That is not a minor procedural detail—it is the mechanism Congress designed. It also reflects a core premise of the dual banking system: that the OCC can be trusted to oversee remediation with the same rigor as the Texas Department of Banking and the Federal Reserve, and vice versa.
In his dissent, Governor Barr acknowledges the statutory exception but treats the existence of an enforcement action as effectively dispositive. In doing so, the dissent relies on two problematic arguments and recasts Section 612’s framework as something closer to a bright-line prohibition.
First, the dissent does not fully engage with the factual record. It highlights the bank’s anti-money laundering deficiencies identified in the 2024 enforcement order but does not address the bank’s progress in remediating those issues in the intervening years. Nor does the dissent grapple with the fact that neither the Texas Department of Banking nor the other members of the Federal Reserve Board objected to the OCC’s plan to oversee that remediation.
Second, Governor Barr’s dissent relies on legal arguments that are not grounded in Section 612. The dissent asserts that “Section 612 is designed to limit regulatory arbitrage,” which Governor Barr defines as “the practice of ‘charter shopping’ by banks to avoid robust supervision and enforcement actions.”[8] However, the claim that Section 612 is designed to limit “charter shopping by banks to avoid robust supervision” is not supported by the statutory text, the 2012 interagency statement or the legislative record. While these sources address enforcement actions, they do not speak to supervision.
The dissent further states that “any request for a statutory exception should be viewed in light of these objectives and should rarely be granted.”[9] Although similar language appears in the 2012 interagency statement, the notion that exceptions should “rarely” be granted appears nowhere in the statute or the legislative record.[10] Rather, Section 612(d) establishes a structured framework for granting exceptions with appropriate guardrails.
Perhaps the most concerning aspect of Governor Barr’s dissent is the unstated premise that the OCC does not supervise national banks as robustly as the Federal Reserve or state bank supervisors. This premise runs contrary to the dual banking system.
The dissent’s narrowing of Section 612(d) has consequences. If Section 612 is treated as an absolute bar, any regulator could effectively lock a bank into its charter by keeping an enforcement action in place. This is at direct odds with the dual banking system, and it is not the system Congress designed. Section 612 instead establishes a framework that depends on interagency agreement. Read as a whole, the statute strikes a balance, blocking evasion of enforcement actions while allowing conversions where they can be done with supervisory consensus.
Governor Barr’s contrary reading would effectively prohibit a bank from converting its charter while it is subject to an enforcement action. That interpretation is inconsistent with the statute and would undermine longstanding principles of regulatory comity. For more than 160 years, the dual banking system has depended on coordinated supervision and meaningful charter choice. Section 612 preserves that balance; the dissent would upset it.
[1] Statement on Conversion of United Texas Bank by Governor Michael S. Barr, Federal Reserve Board (May 15, 2026), available at https://www.federalreserve.gov/newsevents/pressreleases/barr-statement-20260515.htm.
[2] See 12 U.S.C. § 35 (“The Comptroller of the Currency may not approve the conversion of a State bank . . . to a national banking association during any period in which the State bank . . . is subject to a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, a State bank supervisor or the appropriate Federal banking agency with respect to a significant supervisory matter or a final enforcement action by a State Attorney General.”); see also 12 U.S.C. § 214d (“A national banking association may not convert to a State bank . . . during any period in which the national banking association is subject to a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, the Comptroller of the Currency with respect to a significant supervisory matter.”).
[3] Senate Report 111-176, Apr. 30, 2010, at pp. 87–88.
[4] Specifically, Section 612(d) requires that the following conditions be met: (1) the prospective federal supervisor provides the incumbent federal or state supervisor with written notice of the conversion and a plan to remediate the supervisory matter; (2) the federal or state supervisor that issued the enforcement action does not object; and (3) the new federal supervisor implements the plan. Pub. L. 111-203, title VI, § 612(d) (codified at 12 U.S.C. § 35 note (Exception to Prohibition on Approval of Conversions) (2010)). In addition, “in the case of a final enforcement action issued by a State Attorney General, approval of the conversion is conditioned on compliance by the insured depository institution with the terms of such final enforcement action.” Id. United Texas Bank was not subject to a final enforcement action issued by a State Attorney General, so this provision was not relevant to the approval of its conversion.
[5] Interagency Statement on Section 612 of the Dodd-Frank Act Restrictions on Conversions of Troubled Banks (Nov. 26, 2012), available at https://www.occ.gov/news-issuances/bulletins/2012/bulletin-2012-39a.pdf. The plan must be written and should include the following elements: “An assessment of the institution’s compliance with the existing enforcement action and supervisory plan; a discussion of the requirements in the existing enforcement action and supervisory plan that the prospective federal banking agency intends to carry forward; an explanation of the reasons for any requirements not being carried forward; an examination and remediation schedule for matters not yet corrected by the insured depository institution; and the means by which the prospective federal banking agency would address the supervisory matters with the insured depository institution.” Id.
[6] Id.
[7] OCC Corporate Decision No. 1375 (May 15, 2026), available at https://occ.gov/topics/charters-and-licensing/interpretations-and-decisions/2026/cd1375.pdf.
[8] Statement on Conversion of United Texas Bank by Governor Michael S. Barr, Federal Reserve Board (May 15, 2026), available at https://www.federalreserve.gov/newsevents/pressreleases/barr-statement-20260515.htm.
[9] Id.
[10] See Interagency Statement on Section 612 of the Dodd-Frank Act Restrictions on Conversions of Troubled Banks (Nov. 26, 2012), available at https://www.occ.gov/news-issuances/bulletins/2012/bulletin-2012-39a.pdf (“The agencies expect that such exceptions would be rare, and generally would occur only when an insured depository institution has already substantially addressed the matters in the enforcement action or there are substantial changes in circumstances[.]”).
