Press Release: National Association of Realtors
February 2, 2006
NAR Asks New Fed Chair To Maintain Separation Of Banking & Commerce
WASHINGTON--(BUSINESS WIRE)--The separation of banking and commerce is one of our nation's most fundamental economic policies, the president of the National Association of Realtors(r) said today in a hard-hitting letter to Ben Bernanke, the new chairman of the Federal Reserve Board of Governors.
Realtors(r) are specifically troubled about several regulatory actions that would lead to the mixing of banking and commerce. NAR is deeply concerned about the pending application before the Federal Deposit Insurance Corp. (FDIC) from Wal-Mart for an industrial loan company (ILC) charter.
"When commercial firms are allowed to engage in banking, the bank functions under an inherent and irreconcilable conflict of interest," said NAR President Thomas M. Stevens of Vienna, Va.
NAR agrees with numerous banking organizations and bank trade associations that have strenuously opposed the Wal-Mart ILC application on the basis that permitting commercial firms to own banks will result in an impermissible mixing of banking and commerce. However, NAR points out that the banking industry is taking hypocritical positions by opposing commercial companies entering the banking business while at the same time seeking to expand permissible bank activities into real estate brokerage
and real estate development-activities that by their very nature are commercial. NAR hopes that the irreconcilable clash of commercial and banking industries over these activities in different regulatory forums will compel the Federal Reserve Board to support efforts to have Congress resolve these issues through the legislative process.
"NAR strongly believes that Wal-Mart's effort to obtain a federally insured ILC will establish a dangerous precedent that will inevitably lead to an erosion of the separation of banking and commerce. We see serious consequences for the continued stability and growth of the nation's financial system if the FDIC approves the application. Accordingly, we ask that, early in your term, you actively oppose approval by the FDIC of deposit insurance for the proposed Wal-Mart ILC," Stevens said in the
letter.
NAR also stated its belief that recent rulings from the Office of the Comptroller of the Currency (OCC) expanding the authority of national banks to invest in real estate developments are inconsistent with the National Bank Act and the OCC's previous rulings and regulations.
"The new rulings represent another leap forward in the OCC's continued effort to dramatically expand the real estate powers of national banks and undermine the national policy requiring separation between banking and commerce," Stevens said. "The OCC's course of action poses a significant threat to the safety and soundness of the entire banking system, the financial markets, and the whole U.S. economy. The lesson 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 the negative consequences of mixing banking and commerce."
Numerous banking experts see the OCC's actions as a significant expansion of real estate powers of national banks. Two former comptrollers, Eugene Ludwig and John D. Hawke Jr., have publicly acknowledged that the OCC letters move the bar.
By passing legislation each year the past four years barring issuance of the final Federal Reserve Board-Treasury Department rule that would permit financial holding companies and financial subsidiaries to engage in real estate brokerage and management, Congress has clearly stated its view that banking organizations must not be permitted to engage in these activities.
"If Congress does not want banks to engage in real estate brokerage or management, it is inconceivable that it intends to permit national banks to engage in real estate development, which is a much riskier activity. NAR is urging Congress to conduct hearings and take action to address the OCC's continued efforts that breach the wall separating banking and commerce and threaten to destabilize the nation's banking system," Stevens explained.
NAR strongly disagrees with the proposed Fed-Treasury rule that would allow financial holding companies and financial subsidiaries to engage in real estate brokerage and real estate management. "In our view, these activities are purely commercial, not financial, activities," Stevens said. "The fact that banks are involved in real estate financing and other related activities cannot be a basis for concluding that real estate brokerage and management activities are financial or related to financial activities. Such false reasoning leads to the conclusion that banking organizations
may broker any product whose sale they may finance-appliances, automobiles,
airplanes, artwork, etc."
The National Association of Realtors(r), "The Voice for Real Estate," is America's largest trade association, representing more than 1.2 million members involved in all aspects of the residential and commercial real estate industries. Information about NAR is available at http://www.realtor.org. This and other news releases are posted in
theWeb site's "News Media" section in the NAR Media Center.
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