Big Banks Issued Favorable Ruling

Assistant Director of Government Affairs

In December 2005, the Office of the Comptroller of the Currency (OCC) issued an opinion that will allow three big banking conglomerates to engage in real estate development. The decision permits the Union Bank of California to own 70 percent of a windmill farm; PNC Bank to develop and own a project involving retail and office use space, a hotel, and condominiums; and Bank of America to develop and own a Ritz Carlton Hotel.

The National Association of REALTORS® (NAR) President Tom Stevens responded to this opinion by sending a letter to Comptroller John Dugan contending that the three rulings conflict with long-standing limitations on national bank real estate powers set forth in federal statute and regulation. Stevens argued that “the rulings have the potential to lead to a significant erosion of the separation between banking and commerce.”

Since 2001, NAR has been fighting proposed regulations by the Federal Reserve and the U.S. Treasury Department that would expand the powers of national bank conglomerates. The agencies’ proposed rules would permit bank conglomerates to engage in real estate brokerage and management, reclassifying these activities as financial in nature.

NAR has strongly opposed the proposal, arguing that the Bank Holding Company Act of 1956 and the Gramm-Leach-Bliley Act of 1999 do not authorize banking firms to provide real estate brokerage and property management services, as these are non-financial activities.

The banks, of course, have supported the Federal Reserve/Treasury proposal, saying that it would allow financial institutions the opportunity to offer a fuller range of financial services to increase competition and benefit customers.

NAR met with Comptroller Dugan personally to explain its concerns further. NAR also continues to strongly support enactment of the Community Choice in Real Estate Act, H.R.111/S.98, which would remove the power of federal agencies to regulate real estate activities. (See box above on this page for more information.)

While NAR has been unsuccessful in passing the legislation, they have convinced Congress to enact a one-year ban, effective through September 30, 2006, against the Treasury Department from issuing a final rule permitting national bank conglomerates to engage in real estate brokerage and management.