Expanding Bank Powers to Engage in Real Estate Development
In December 2005, the OCC issued three rulings expanding the authority of national banks to engage in real estate development and ownership:
- Banks can develop multi-use projects that include offices, retail, hotel, and condos, which they can sell immediately to make the project economically feasible.
- Banks can develop luxury hotels in which less than half of the rooms will be use for the bank's business purposes.
- Banks can own equity interest in windmills and the associated real estate, under the pretext that the ownership interest was taken in connection with financing the project.
Why should REALTORS® care?
Banks have a cheap source of capital, thanks to Federal deposit insurance. This gives them an unfair advantage over REALTORS® and others involved in real estate development. Because the federal government insures the bank deposits of consumers, they are willing to accept a lower rate of interest from banks.
Plus, expanding the authority of banks to develop real estate could lead to the OCC giving banks broader authority to broker and manage real estate, violating the national policy against mixing banking and commerce.
In addition, 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 of the 1980s, REALTORS® and all other taxpayers will be forced to bail out the banks.
The U.S. economy depends on a strong real estate market and a healthy banking industry, and federally backed banks should not be allowed to put tax dollars, and our economy, at risk.
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House Committee on Financial Services Hearing - Improving Federal Consumer Protection in Financial Services
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