FEDERAL WAY, Wash. — Pointing out a number of "taboos" associated with the Office of the Comptroller of the Currency's decision to approve requests from three banks wanting to engage in commercial real estate deals, Washington Credit Union League CEO John Annaloro is concerned about the ramifications.
Julie Williams, OCC chief counsel, defended the regulator's decision at a recent House Government Reform subcommittee to approve petitions from Bank of America Corp., PNC Financial Services Group and Union Bank of California to enter into hotel and retail deals saying they do not pose a conflict of interest or set a precedent.
Annaloro said the decision "was seemingly an exercise in regulatory bad judgment."
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"A number of taboos come to mind; mixing banking and commerce, conflict of interest with institutions lending to themselves, OCC as a weak 'cheerleader-regulator,' moral-hazard, FDIC coverage for nonbanking retail operations not permitted by charter, and more," Annaloro said.
Annaloro said OCC's decision "is reminiscent of the failures of similarly structured S&L projects in the 1980s and early 1990s that necessitated the formation of the Resolution Trust Company, and the resulting bailout." In 1996, the General Accounting Office updated the accounting for banking's "last big exercise in systemic stupidity" putting the cost to American taxpayers at $480.9 billion, he pointed out.
"We are still paying on that debt today," Annaloro said. "Yet here we go again."
At a recent House Government Reform subcommittee, Williams said the banks' requests met the letter of the law.
"The banks involved do not have dual roles that could present conflicts of interest, nor do the letters [approving the real-estate ventures] set new precedent that will lead to greater participation by national banks in real estate that could potentially have larger effects on the economy," said Williams, The Wall Street Journal reported in a Sept. 28 article.
Allowing banks to venture into this area puts them closer to becoming real-estate brokers, the National Association of Realtors criticized. NAR President Thomas Stevens said OCC's actions will turn into more authorizations being granted to banks that want to engage in real estate brokerage, a move that is currently prohibited.
Annaloro said OCC is "once again defending itself for ignoring the rule book and letting banks go into activities that are clearly beyond Congressional intent." –[email protected]
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