The National Association of Realtors on May 17, said it would press for a "permanent ban" on banks entering real estate, and that it had convinced some in Congress that recent decisions by a US regulator allowing banks to invest in some commercial developments went too far.
"The bottom line is banks should stick to banking and to limited, congressionally authorised other activities, such as community and economic development investments," the Realtors' president, Tom Stevens, said.
"Banks should not invest in speculative, potentially risky, run-of-the-mill commercial investments like hotels and condos," he said at the group's midyear legislative meetings.
The Realtors group has been pressing this issue on Capitol Hill for months following letters issued by the US Office of the Comptroller of the Currency (OCC) that let two banks make real estate investments that involved hotels and a third to develop and partially own a wind-energy project.
But banks and the regulator often dismiss the Realtors' concerns, saying banks' real estate investments are well founded in precedent and do not involve brokerage activities.
US law restricts banks' real estate activities, and US banks do not develop or own properties beyond those associated with their business operations. Comptroller of the Currency John Dugan, in response to questions posed by the top two Democrats on the House Financial Services Committee, said banks' authority to invest in real estate remains substantially limited.
"The Bank Premises Letters that prompted your inquiry deal only with limited situations where holding an interest in real estate is permissible for national banks," the OCC's Dugan said in a letter to the House Democrats that raised concerns. "They are based on decades-old judicial precedent and OCC interpretations that expressly recognise that a national bank may hold and develop property used for its own operations and lease or sell the portion of the premises that the bank does not use."
Indeed, banks have been allowed to invest in property used for bank business and lease excess space out for more than 100 years.
Their allowable activities expanded during that period, according to agency documents. In 1985, for example, the OCC issued a letter that authorised a national bank to develop part of its new bank premises as condominiums and to sell those condos. In 1993 and 1994, the OCC said a national bank could hold condos for out-of-area visitors and lease those condos out when they were not in use.
A 1997 FDIC report on that crisis cited among thrift activities leading up to the meltdown direct investments in real estate that were "allowed with virtually no limitations."
"It is important to note, however, that while windmill farms and other exotic investments made for interesting reading, high-risk development loans and the resultant mortgages on the same properties were most likely the principal cause for thrift failures after 1982," the FDIC wrote.
But banks and bank regulators say no fair comparison can be made between the industry's current real estate investments and those of the savings and loan industry in the 1980s. Regulation has improved and supervision has become more stringent, they say.
"The NAR's public campaign, conjuring up ominous phantoms of economic catastrophe, is not only misleading, it is dangerous. The public's confidence in our banking system should not be falsely undermined to further a political agenda," wrote five groups representing banks to members of Congress.
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