NationsBank Seeks Fed Approval to Enter Real Estate Development

By Paul Nyhan Bloomberg News | THE JOURNAL RECORD, April 4, 1997 | Go to article overview

NationsBank Seeks Fed Approval to Enter Real Estate Development


Paul Nyhan Bloomberg News, THE JOURNAL RECORD


WASHINGTON -- NationsBank Corp. asked federal regulators to crack open the door for banks to get into real estate development.

In two carefully crafted applications, the North Carolina-based company became the first national bank to apply under a controversial new system unveiled by the Office of the Comptroller of the Currency last fall to let national banks enter new businesses.

The bank asked the OCC for the right to establish one separate subsidiary to sponsor a single housing development and another to lease real estate. Both regulators and bankers say they want to move slowly to expand banks' powers under the new system. Still, national bankers say they hope the OCC will eventually allow them to move into new lines of business, such as underwriting insurance and securities. "In the first six months to a year, the OCC will play it reasonably safe," said Robert Litan, director of economic studies at The Brookings Institution. Still, the NationsBank applications may create problems for the banking industry. If the OCC approves the proposal to allow limited real estate development, other banks may claim the agency has set a precedent that most real estate development is permissible, Litan said. "If they approve (it) they will have opened the door," said Litan. NationsBank consulted with the OCC in developing the plans, and Litan expects the agency to approve them. The banking industry will be watching how the OCC handles the two requests. Many bankers think the agency's reaction will set the stage for how quickly regulators will allow other national banks to move into new businesses. Some conditions are likely. For example, the OCC must ensure that barriers exist between NationsBank and its subsidiaries to guarantee that problems at the subsidiaries won't threaten the health of the parent bank. Some bankers say the OCC will simply grant national banks powers that other bank regulators have already given bank holding companies and state-chartered banks. U.S. banks can operate under an OCC charter for national banks, a Federal Reserve charter for bank holding companies, a state charter, or a combination. While NationsBank Corp. is a holding company, it is applying to the OCC for the new powers under its charter as a national bank. The Fed already allows bank holding companies to engage in real estate leasing through their separate affiliates. "I don't think the OCC will encourage very venturesome applications very early on," said Jim McLaughlin, regulatory director at the American Bankers Association. "For instance, I don't think the OCC would encourage a national bank" to set up an insurance underwriting subsidiary. …

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