- The Washington Times - Friday, March 2, 2001

In a clear departure from the position held by the federal government that banks were not allowed to broker tangible assets, banks entered the mutual fund and insurance businesses in the 1990s.
This was mostly through acquisition. Their primary purpose was to protect customers' investments by holding on to their deposits and loaning out those funds into reasonable investments.
This also is why the federal government provides banks with special protections, such as the Federal Deposit Insurance Corp. program, which protects bank customers from bank failures.
Real estate companies enjoy no such protection.
Banks now want to enter the arena of real estate for the primary purpose of subsidizing their banking revenues. They've made this bold move by arguing that since a real estate transaction involves the largest investment for most consumers, it is mostly a financial transaction. This is the rationale they're using to breach the wall of separation between banking and commerce, as Rep. Spencer Bachus, Alabama Republican, has pointed out in a letter to the Federal Reserve.
The Federal Reserve is considering changing the rules, opening wide the doors for those with all the money to take over a large part, even dominate, the real estate industry.
So what's wrong with that? Plenty.
While the American Bankers Association claims that approving real estate brokerage for financial service holding companies will benefit customers by providing greater choice and more competition for their services, they fail to point out just how it is supposed to benefit consumers.
In addition, our government has long held the position that banks aren't to participate in commerce because depositors' money should be held in a safe haven, rather than put at risk by extraneous non-banking activities. A recent example involves banks entering the insurance business.
The National Association of Realtors reports that, "Overall, insurance agencies acquired by banks have had poor performance… . The average [non-bank owned] agency is growing at an annual rate of roughly 5 percent in total commissions and fees while bank-owned agencies are actually shrinking at a 0.3 percent rate."
The track record of banks reducing costs to customers as the ABA asserts in its bid to enter the real estate field is increasingly suspect, the NAR points out.
Banks, the Realtors say, have increased, not decreased, costs to consumers. In the past 10 years, the cost of ATM transactions jumped 34 percent, monthly fees on our interest-paying checking accounts grew by 27 percent and fees for bounced checks increased by 21 percent.
One of the arguments I've heard from those who believe banks should get into the land business is that many real estate companies now own mortgage companies. So why shouldn't banks be allowed to own real estate companies?
It is not the same thing. These mortgage broker firms, while owned by the real estate entities, don't put depositors' funds at risk by their very existence.
If a real estate company gets sued, goes bankrupt or faces some other financial disaster, the owners of the company are the ones at risk not innocent third parties who rely on savings and checking accounts. We saw that happen in the 1980s when the savings and loans went into the land development business. They placed their depositors' funds at risk in a fast-paced real estate market. Once the market went south, the taxpayers were left with a $130 billion bailout.
Please, let's learn from our mistakes not repeat them.
M. Anthony Carr has written on real estate issues for 12 years. He is former deputy editor of the Friday Home Guide and currently hangs his hat at the Northern Virginia Association of Realtors. Comments and questions can be sent to him by e-mail ([email protected]).

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