Frontline: Real Estate Flap
Trigaux, Robert, American Banker
FRONTLINE: Real Estate Flap
Is the state charter for banks on the endangered list?
Not yet. But as federal authorities struggle to keep a fast-changing financial industry within bounds, state chartered institutions are being put to the test.
Consider the Federal Deposit Insurance Corp.'s rare public hearing last Friday. The FDIC listened to industry ideas on an agency plan to limit state-authorized direct real estate investment and insurance activities. The proposed limits--among them, a bank's total in-house equity investment in real estate cannot exceed 50% of primary capital--reflect one agency's belief in what is safe and sound banking practice. But they are not the states' limits.
Take New York, Ohio, and California laws on bank direct real estate investment. If the FDIC gets its way, federally insured banks chartered in these states and others with real estate development laws in place will have to opt for more conservative FDIC guidelines--or face possible loss of federal insurance coverage.
Notably, few banks are yet heavy direct investors in real estate projects. But the supervisory system is preparing for the day when bank equity participations become a significant business.
Overlapping Strain Felt
Part of the current concern of many makers of bank rules and laws is structural: The unique system of "overlap' authority among federal banking agencies and the states is under a severe strain of industry deregulation.
Powerful interest groups, including the Conference of State Bank Supervisors and the American Bankers Association, are uneasy and talk of FDIC Chairman William M. Isaac's "overreach' of authority in setting rules at odds with some states' banking regulations.
Nevertheless, FDIC officials reason that if the FDIC backs these banks' deposits, shouldn't these banks be subject to agency rules? (On Friday, the FDIC refused to even address questions of its legal right in the matter.)
For thrifts, it's already a familiar theme. The Federal Home Loan Bank Board last year asked itself the same question before issuing rules restricting real estate investment by federally insured state-chartered thrifts.
Close by on the sidelines is the Federal Reserve. While its January proposals on real estate activities have yet to resurface, the agency is watching the FDIC's rulemaking progress.
The Fed wants a firm and conservative grip on real estate activities, and others to come, by any banks belonging to bank holding companies. …