Week 9 Flashcards
(50 cards)
What was the primary regulatory obstacle faced by Citibank in the 1970s?
State usury laws limiting interest rates
Which Supreme Court case allowed banks to export interest rates from their home states?
Marquette v. First of Omaha
Why did Citibank choose South Dakota for its relocation in 1981?
South Dakota had no interest rate caps
What did South Dakota gain by welcoming Citibank?
A revitalized local economy and jobs
What key term in the National Bank Act was central to the Marquette decision?
“Located”
How did Citibank address its rising costs due to state usury limits in New York?
It relocated its credit card division to a state with lenient laws
What broader economic trend did Citibank’s move exemplify?
Financialization and regulatory arbitrage
What protection did South Dakota offer to its local banks when Citibank relocated?
Prohibited Citibank from opening consumer-facing branches
What was the public reaction to Citibank’s early attempts to charge service fees for credit cards in New York?
Backlash, including customers returning their cards
Which financial factor significantly increased the risk for credit card banks in the 1970s?
Rising interest rates driven by inflation
How did Citibank’s move to South Dakota affect the national banking system?
It allowed state-level decisions to shape national credit policy
What role did Governor Bill Janklow play in Citibank’s relocation?
He facilitated Citibank’s relocation to boost South Dakota’s economy
By 1983, what percentage of U.S. credit card loans came from states like South Dakota and Delaware?
75%
What was the long-term impact of states like South Dakota eliminating usury laws?
A nationwide rise in credit card debt and interest rates
What does Sean Vanatta mean by a “race to the bottom”?
States removing consumer protections to attract banking business
What sparked consumer distrust in banks during the Great Depression?
Banks running out of liquidity to return consumer deposits
What was one of the main goals of President Roosevelt’s New Deal?
Stabilizing the economy by capping interest and deposit rates
What was one unintended consequence of deregulating the credit card industry?
Increased reliance on credit among low-income households
What percentage of U.S. households carries credit card debt, according to Vanatta?
40%
What effect did rising inflation in the 1970s have on credit card banks?
It increased the risk of loan losses due to state usury caps
What specific legal strategy did Citibank use to bypass restrictive interest rate caps in New York?
Relocating its credit card division to South Dakota to exploit the Marquette ruling
What was the original purpose of the state usury laws that Citibank circumvented?
To protect consumers from predatory lending practices
Why did the Marquette decision favor out-of-state banks like Citibank over local competitors?
It allowed banks to bypass state-level financial consumer protections.
What was a key argument used by the Supreme Court in the Marquette ruling regarding the location of a bank?
A bank’s location is determined by the state in which it is chartered.
