Federal regulators say recent rulings that gave three banks the go-ahead to invest in commercial developments do not set a precedent allowing banks to act as real estate investors, developers or brokers.

In testimony before a congressional panel Wednesday, the top lawyer at the Office of the Comptroller of the Currency rebutted claims by the National Association of Realtors that the OCC is loosening prohibitions intended to keep banks out of the real estate business.

NAR President Thomas Stevens told lawmakers that three OCC rulings in which banks were given the green light to invest in commercial developments represented an inappropriate expansion of banking powers.

“We remain concerned about the OCC’s real estate decisions and strongly believe that these rulings will inevitably lead to an irreparable breach in the wall separating banking and commerce,” Stevens told lawmakers, according to a press release issued by NAR. “Without congressional action, we foresee the OCC stringing together authority with decisions that permit national banks to participate in negotiating sale transactions on behalf of real estate investors and authorize national banks to engage in full service real estate brokerage free from controls and protections established by state and local laws.”

The first ruling, issued in December 2005, gave PNC Bank the go-ahead to develop a mixed-use office, hotel and residence building on property the bank owned, with the bank occupying 22 percent of the new building. 

The second ruling, also issued in December, approved Bank of America’s request to invest in a Ritz-Carlton Hotel on property the bank owns next to its Charlotte, N.C., headquarters, with the bank using more than half of the occupied rooms to lodge out-of-area bank employees, bank directors, vendors, shareholders, customers and others visitors on bank-related business.

The third ruling, in January 2006, authorized Union Bank of California to finance up to 70 percent of an electricity-producing wind farm project so the bank could take advantage of federal tax credits that reduce the cost of alternative energy projects.

In a written statement to lawmakers, OCC chief counsel Julie L. Williams said the rulings do not set a precedent and are “quite specific, limited in scope, and within the framework of existing precedent for national banks’ activities.”

PNC and Bank of America’s requests were approved because banks have a limited authority to hold and develop property in connection with their own operations, Williams said, and can lease or sell a portion of the premises they do not use.

Union Bank’s investment in the wind farm project is structured as a loan, rather than a speculative equity investment, Williams said. The bank can’t realize a gain on the appreciation of the wind farm’s assets, but are allowed to reap tax benefits Congress made available to encourage the financing of alternative energy projects.

The OCC rulings in these cases “do not authorize national banks to engage in the business of real estate investment or development, have nothing to do with merchant banking, have nothing to do with allowing national banks to conduct real estate brokerage, and were carefully evaluated by OCC supervisors to assure that the activities would be consistent with the safe and sound operations of the banks involved,” Williams said.

The OCC reviews all such proposals on a case-by-case basis, and has received no similar proposals from other banks citing the previous rulings, Williams said.

Williams and Stevens testified at a hearing conducted by the House Committee on Government Reform’s Subcommittee on Government Management, Finance and Accountability.

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