When it comes to banking regulators, turf wars are nothing new. But industry experts say the $340 million settlement earlier this week between the newly created New York State Department of Financial Services and Standard Chartered Bank over allegations of money laundering on behalf of Iranian clients takes in-fighting to a new level.

As one put it, it’s as if federal banking overseers invited the baby regulator from New York to the table — but before anyone got a bite to eat, the baby gobbled up the steaks and dessert and left.

“It’s unusual to have a state regulator go it alone,” said Venable partner D.E. Wilson Jr., who previously served as acting general counsel of the U.S. Treasury Department. “It puts a new financial regulator on the map.”

There’s plenty of precedent for state enforcers to charge ahead of slower-moving feds  — think tobacco or Microsoft, not to mention Eliot Spitzer’s cases against Wall Street firms when he was New York attorney general.

But some see the Standard Chartered case as fundamentally different, involving issues of national security and foreign policy — the purview of the federal government — as opposed to consumer protection or civil fraud, where state enforcers have more traditionally focused.

“If [Standard Chartered] was doing predatory lending, I can see why there would be a vested interest in protecting the people of New York,” said Peter Vinella, the director of the Berkeley Research Group who spent 25 years as a financial industry executive and consultant. “But this is a federal anti-corruption issue….It wasn’t like the feds did a nine month study and decided not to prosecute.”

The Treasury Department’s Office of Foreign Assets Control, the Federal Reserve and the Justice Department continue to investigate allegations that Standard Chartered schemed with the government of Iran to move $250 billion through the British bank’s New York branch, in violation of U.S. economic sanctions.

New York’s Department of Financial Services, which was formed 10 months ago by combining the New York State banking and insurance departments and is headed by Benjamin Lawsky, a 42-year old Columbia Law School graduate, charged the bank on Aug. 6 with seven violations. Three of the charges involve failing to maintain accurate books and records, one alleged violation was for obstructing government administration, another for failure to report crimes and misconduct, while the seventh was for unauthorized Iranian transactions.

The state regulators ordered the bank to “demonstrate why [its] license to operate in the State of New York should not be revoked.”

“Revoking the license is the death penalty…disastrous to the operations of a global bank,” said Pillsbury Winthrop financial services partner Joseph Lynyak III, adding, “There remains a factual dispute as to the degree of actual culpability, but in the circumstances that becomes somewhat irrelevant. It appears that [the bank] saw the advantage of settling the case in order to avoid the harm that would occur should its U.S. license be revoked.”

Lynyak also noted that the new department’s predecessor banking agency had long taken an interest in money laundering and foreign asset control issues. “It’s always been a priority,” he said. “They’ve got skin in the game as well.”

For the feds, there is likely to be a face-saving desire to equal or surpass the penalties assessed by the state, lawyers said. “It should be easy to get over that amount if the facts are as the New York regulators claim,” Wilson of Venable said.

Federal regulators will also need to smooth the feathers of their counterparts in Great Britain, who complained they were cut out of the loop. “They need to find a way to make this a positive, joint effort,” Wilson said.

While industry experts agree the Financial Services Department has re-shaped the regulatory landscape for banks with its aggressive tactics, it’s not clear it will change how regulators interact with each other.

“None of the regulators like each other,” Vinella said. “The [Federal Deposit Insurance Co.] doesn’t like the Fed, the Fed doesn’t like the [Office of the Comptroller of the Currency], and they all hate the state regulators.”

Contact Jenna Greene at jgreene@alm.com.