WASHINGTON — The Supreme Court unanimously declined to broadly rule on a case on the country's dual banking system, and sent it back to the Court of Appeals for the Second Circuit with a demand for "competitive nuanced analysis." 

In the case, Cantero v. Bank of America Corp., the Supreme Court considered whether the National Bank Act would block the application of a New York law requiring that banks pay a minimum of 2% interest on mortgage escrow accounts. The Second Circuit previously ruled that the National Bank Act would preempt the New York law. 

Reversing that decision could have invited a flood of litigation and uncertainty, particularly for the Office of the Comptroller of the Currency, about when national banks can ignore state laws. 

The Dodd-Frank Act gives the OCC preemption authority over many regulatory issues, meaning it can block the application of state laws that give an unfair advantage to state-chartered banks over national banks. 

"It just seems like a complicated situation, but you are able to assess the whole thing," said Supreme Court Justice Samuel Alito during oral arguments on the Bank of America case. "So just explain why this would not cause practical nightmares." 

Rather than ruling broadly on national preemption authority, the Supreme Court's opinion — authored by Justice Brett Kavanaugh — sends the case back to the Second Circuit with instructions to perform a more robust analysis of the trade-offs of having national law preempt state law in this case. 

"A court applying that standard must make a practical assessment of the nature and degree of the interference caused by a state law," the opinion said. "In this case, the Second Circuit did not conduct the kind of nuanced comparative analysis required."

Instead, the Second Circuit "distilled a categorical test that would preempt virtually all state laws that regulate national banks," the opinion said. 

Dodd-Frank does not draw a "bright line" in deciding whether a certain state law is preempted or not, the opinion said, citing prior cases related to state preemption. The analysis then, he says, becomes key. 

"If the state law prevents or significantly interferes with the national bank's exercise of its powers, the law is preempted," the opinion said. "If the state law does not prevent or significantly interfere with the national bank's exercise of its powers, the law is not preempted." 

The Biden administration previously urged the Supreme Court to decline to hear the Bank of America case, along with another one, Flagstar Bank FSB v. Kivett, which also dealt with state preemption issues in banking rules. 

The administration's brief challenged the decisions made by two appeals courts — the Flagstar decision by the Ninth Circuit and the Bank of America case in the Second Circuit — but said that the issue shouldn't be decided by the Supreme Court. 

"Neither the Second nor the Ninth Circuit applied the correct preemption standard to the interest-on-escrow laws at issue," the solicitor general said in an August brief with the Supreme Court. "The Court therefore should allow additional lower courts to consider the question presented and engage with the arguments raised in this brief."