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CANTERO v. BANK OF AMERICA, N. A. 

Opinion of the Court 

whether to obtain a charter from the Federal Government 
or from a state government.

Banks  with  federal  charters,  called  national  banks,  are 
subject primarily to federal oversight and regulation.  And 
banks with state charters, called state banks, are subject to 
additional  state  oversight  and  regulation.  Those  two 
banking systems co-exist and compete. 

The  national  banking  system  began  in  1863  when
Treasury  Secretary  (later  Chief  Justice)  Salmon  Chase 
proposed,  Congress  passed,  and  President  Lincoln  signed
the National Bank Act.  12 Stat. 665; 13 Stat. 99.  When a 
bank  obtains  a  federal  charter  under  the  National  Bank 
Act,  the  national  bank  gains  various  enumerated  and 
incidental powers.  12 U. S. C. §24.  The National Bank Act 
expressly affords national banks the powers that they need
to organize and operate—for example, the powers to “make
contracts,” to “sue and be sued,” and to “elect or appoint” a
“board  of  directors.”  §24.    The  Act  also  provides  national
banks with banking-specific powers.  As relevant here, the 
Act  expressly  supplies  national  banks  with  the  power  to
“make,  arrange,  purchase  or  sell  loans  or  extensions  of
credit secured by liens on interests in real estate”—in other 
words, to administer home mortgage loans.  §371(a).  The 
Act also expressly authorizes national banks to exercise “all 
such incidental powers as shall be necessary to carry on the 
business of banking.”  §24. 

When  national  banks  make  home  mortgage  loans,  they
often offer escrow accounts.  Mortgage-escrow accounts are 
designed to protect both the bank and the borrower.  When 
the  borrower  makes  a  mortgage  payment,  the  borrower 
puts money into an escrow account operated by the bank; 
the  bank  then  uses  the  funds  in  escrow  to  pay  the 
borrower’s  insurance  premium  and  property  taxes  on  the
borrower’s behalf.  That arrangement helps the borrower by
simplifying expenses and budgeting.  Instead of having to
pay  large  lump-sum  insurance  and  tax  payments  once  or