The Supreme Court ruled Tuesday that state financial regulators must step aside in a battle over who oversees subsidiaries of national banks.

The 5-3 decision is a victory for the 1,600 national banks, which say they should not have to face a dual system of federal-state regulation in a growing area of their business.

States and many private groups including the AARP, representing retirees, say a regulatory framework that includes the 50 states as well as federal bank examiners can better protect millions of consumers.

The number of national bank subsidiaries has grown to about 500 in recent years. They are permitted to engage in mortgage lending and a wide range of other activities, from acting as a finder for used car sales to Medicare and Medicaid counseling.

Writing for the majority, Justice Ruth Bader Ginsburg said that ''we have never held'' that federal regulators' authority ''extends only to a national bank itself.''

''We have treated operating subsidiaries as equivalent to national banks,'' Ginsburg added.

In a dissent, Justice John Paul Stevens said the court's decision ''threatens the vitality of most state laws as applied to national banks.''

National banks in the United States have $6 trillion in assets. Wachovia, the bank that is the subject of the court ruling, is the fourth-largest in the country.

The Bush administration supported Wachovia's position in the case.

Wachovia took advantage of a rule adopted by the U.S. Office of the Comptroller of the Currency in 2002. It enabled the comptroller to push states out of the regulatory picture regarding subsidiaries of national banks.

Many states say the reality is that when state regulators are pushed aside, federal regulators are not filling the gap. That, say state officials, is because there often are no comparable federal laws to the ones state regulators enforce. In addition, say the states, federal regulators don't have the resources to deal with the flood of consumer complaints the states handle each year.

The primary function of the federal comptroller is to scrutinize the books of national banks to ascertain whether the institutions are financially sound. The comptroller's office says it has ample resources and the legal tools to respond promptly to consumer complaints and that it moves aggressively to provide protection to consumers.

The ruling comes as state and federal regulators alike are under scrutiny for allegedly failing to police the subprime mortgage market which has now been hit with massive defaults. ''Subprime'' refers to loans starting with low rates that rise sharply after just two or three years, causing their payments to jump. The borrowers often have tarnished credit or low incomes and are considered greater lending risks.

The Mortgage Bankers Association said late mortgage payments shot up to a 3 1/2-year high in the final quarter of last year. New foreclosures surged to a record high as borrowers in the subprime market had trouble keeping up with monthly payments.

The case is Watters v. Wachovia Bank N.A., 05-1342.

(Published by The New York Times, April 17)