COMPTROLLER OF THE CURRENCY RULINGS EXPANDING BANK POWERS
ISSUE: In December 2005, the Office of the Comptroller of the Currency (OCC) expanded the authority of national banks to engage in real estate development by issuing rulings that allow banks to develop luxury hotels; to develop multi-use projects including office and retail space, a hotel, and condominiums for immediate sale to make the rest of the project economically feasible; and to take a 70 percent equity stake in a windmill farm. The new rulings represent the latest step in the OCC's continued efforts to dramatically expand the powers of national banks into real estate and are inconsistent with the national policy against mixing banking and commerce.NAR
POSITION: NAR is strongly opposed to the OCC actions Permitting national banks to engage in real estate activities undermines the long-standing, Congressionally-mandated separation between banking and commerce. Mixing banking and commerce inevitably leads to conflicts of interest, an unlevel playing field, and risks to the financial system.
The lessons learned from the savings and loan scandal of the 1980s and the sluggish Japanese economy, where banks are intertwined with real estate and commercial enterprises, are two dramatic examples of negative consequences of mixing banking and commerce.
OPPOSING VIEWS: OCC and the banks argue that the rulings are consistent with law, regulation, and precedent and that the investments are either necessary to accommodate the bank's business or, in the case of windmills, the functional equivalent of a loan.
IMPACT ON REALTORS®: Federal subsidies give banks access to cheap sources of capital, which gives them an unfair advantage over REALTORS® and others involved in real estate development. Expanding the authority of banks to develop real estate could lead to the OCC giving banks the authority to broker real estate as well.
Allowing banks into real estate development lets them compete unfairly with real estate professionals. For example, a bank could take a real estate professional's application for financing to develop a piece of property and use the information to develop a competing proposal that cuts out the real estate professional.
Investing in real estate can be a risky venture as markets change. The OCC should not expand the authority of banks to invest in real estate development because it creates the risk that, as in the savings and loan scandal in the 1980s, REALTORS® and all other taxpayers will be forced to bail out the banks.
STATUS/OUTLOOK: NAR has raised its concerns about the OCC rulings with OCC Comptroller John Dugan, Chairman Ben Bernanke of the Federal Reserve Board, Treasury Secretaries John Snow and Henry Paulson, and FDIC Chairman Sheila Bair. NAR is also communicating its strong objections to Members of Congress, urging Members to communicate their objections directly to OCC, and suggesting that Congress take action to rein in the inappropriate expansion of banks into real estate development. OCC has not issued any more interpretive letters responding to bank requests to engage in real estate development. On September 27, 2006, the House Government Reform Subcommittee on Government Management, Finance and Accountability held an oversight hearing on the OCC's December 2005 decisions authorizing national banks to invest in commercial real estate projects. President Tom Stevens testified on behalf of NAR and Cynthia Shelton (FL) will testify on behalf of the REALTORS Commercial Alliance. Other witnesses for the hearing included the OCC and the American Bankers Association.
CONTACTS: Jeff Lischer 202-383-1117, Lynn King 202-383-1156, Helen Devlin 202-383-7559
