Order Code RS21104
Updated August 28, 2003
CRS Report for Congress
Received through the CRS Web
Should Banking Powers Expand into Real
Estate Brokerage and Management?
William D. Jackson
Specialist in Financial Institutions
Government and Finance Division
Summary
In late 2000, the Federal Reserve and the Treasury proposed to use their authority
to increase banking powers. The regulators proposed allowing banking companies to
engage in real estate brokerage and management, as activities that are financial in nature.
Their proposal has been controversial, pitting real estate companies against banks. The
substantiative issues are two: those that question the respective nature of banking and
of real estate activities; and those that question what the impact on consumers will be.
Procedural questions involve the intent of the 106th Congress in the Gramm-Leach-
Bliley Act, which delegated authority to the two agencies to issue new regulations of this
kind. A reintroduced the Community Choice in Real Estate Act, as H.R. 111/S. 98,
would remove these real estate activities from consideration under the market-adaptive
powers of the regulators. The House, via an amendment introduced by Representative
Northup to the Treasury-Postal appropriations measure, H.R. 5120 of the 107th
Congress, voted to block issuance of the proposed rule in fiscal year 2003. As a result,
the Treasury Department became forbidden to act upon its regulation until October
2003, when fiscal year 2004 begins. On July 11, 2003, Representative Northup
reintroduced the amendment to be in effect in fiscal year 2004, which was approved by
a Subcommittee, then the full Appropriations Committee on July 24. As Section 634
of H.R. 2989, the amendment would extend the current ban until Sept. 30, 2004, since
it prohibits fiscal year 2004 funds from being used to implement the proposed rule. This
report will be updated as events warrant.
Framework of Legislation and Regulation
The Gramm-Leach-Bliley Act (GLBA, P.L. 106-102)1 was landmark legislation that
allowed banking, securities, and insurance companies to operate in affiliation with each
other under the umbrella organizational form of financial holding companies (FHCs.)
1 113 Stat. 1338 — 1481.
Congressional Research Service ˜ The Library of Congress

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GLBA also permitted FHCs, like financial subsidiaries of banks (FSs) newly authorized
by the law, to engage in a variety of financial activities not previously allowed to banks
or companies owning banks.2 Under GLBA, the Federal Reserve (Fed) and the Treasury
Department, which contains the Office of the Comptroller of the Currency (OCC), have
authority to issue regulations expanding activities for FHCs and FSs, respectively.
Statutory standards in GLBA for regulatory expansion of lines of business available
to FHCs and to banks through FSs are somewhat elastic. Section 103 requires that the
Fed find that new activities for FHCs are financial in nature, or incidental to a financial
activity, or, in a less stringent test, both “complementary” to a financial activity and not
posing a substantial risk to safety and soundness. Section 121 repeats the standard for
FSs. New activities must meet one or more of these tests, as determined by regulation.
Congress crafted GLBA as a compromise to allow financial affiliations while
avoiding a general mixing of “banking” with “commerce.” For example, the law
specifically excluded bank FSs from underwriting insurance, and from real estate
investment and development, except as may already have been authorized by other law.3
In December 2000, the Fed and the Treasury released a proposal to allow banking
companies into new real estate businesses, under Sections 103 and 121 of GLBA.4

Proposed Brokerage and Management Regulation
Their proposal would allow FHCs and FSs to enter real estate brokerage and property
management, if these activities could be considered financial in nature or incidental to a
financial activity. The draft regulation does not address the less exacting
“complementary” test. “Brokerage” includes acting as an intermediary between parties
to a real estate transaction, listing and advertising real estate, soliciting sales, negotiating
terms, and handling closings. It does not involve purchase or sale of property as an owner,
and requires state licensing and regulation. “Property management” includes soliciting
tenants, negotiating leases, servicing rents, maintaining security deposits, making
operating payments, and overseeing upkeep. Managers thus need not be owners, and
banking firms could not become owners of real estate through this proposal.
The Fed and the OCC historically disallowed real estate brokerage and property
management activities for their regulated institutions. The Office of Thrift Supervision
2 FHCs hold controlling stock interests in separately incorporated or chartered businesses, such
as banks, mortgage companies, stockbrokers and dealers, etc. The Federal Reserve supervises
all FHCs, which are not federally insured. FSs are businesses that banks themselves own. The
bank regulators supervise FSs, which, while not necessarily federally insured, are owned directly
by insured banks. These structural differences are important because GLBA allows more latitude
for uninsured FHCs to operate in nontraditional lines of business. FHCs are considered less
likely than banks and bank subsidiaries to cause difficulties for the federal support mechanisms
for banks, especially deposit insurance funds, should they encounter losses.
3 113 Stat. 1373, 12 U.S.C. 24a.
4 Board of Governors of the Federal Reserve System and Department of the Treasury, “Bank
Holding Companies and Change in Bank Control,” Federal Register, vol. 66, no. 2, Jan. 3, 2001,
pp. 307-314.

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(also within the Treasury) does allow subsidiaries of federal savings associations to
provide real estate brokerage and property management services. About 25 states seem
to allow these activities for the financial institutions that they charter and regulate,
however, actual practice of them appears very rare.5 Conversely, real estate brokers and
managers cannot offer essential banking services — accepting deposits and making
commercial loans — and are not seeking to become bank-like. They do not want to form
financial holding companies or obtain bank charters, and especially seek to avoid
becoming regulated by the Fed or other banking agency.
Bankers (American Bankers Association, Financial Services Roundtable, and New
York Clearing House Association) requested the new authority. In their view, it would
allow financial institutions to offer a fuller range of financial service, using many skills
that banks already have. They argue that these activities are financial in nature and that
would be beneficial to customers, because costs of realty transactions might fall.
The National Association of Realtors (NAR) opposes the proposal, arguing that the
law does not authorize banking firms to provide real estate brokerage and property
management services, which it argues are primarily nonfinancial in nature. From its
perspective, the proposal would create anti-competitive and anti-consumer concentrations
of power dominating the realty industry and might increase costs to consumers.
Arguments for and against the substance of the proposed regulation are of two kinds:
those concerning the respective nature of banking and of real estate activities, and those
concerning the potential impacts on consumers. Questions concerning the intent and the
application of GLBA to what may or may not be “commercial” activities also persist.
Arguments Concerning the Nature of the Industries
Favoring the Proposal.
(1) Banks, FHCs, and FSs already engage in a variety of other real estate activities:
financing, appraising, leasing, settling, escrowing, and investment advising.
(2) Agency services that FHCs and FSs provide in securities and insurance are similar to
those of real estate brokers and property managers.
(3) FHCs may act as “finders,” bringing together buyers and sellers of non-real-estate
assets generally. ( Found parties must negotiate terms, including prices, for themselves.)6
(4) Bankers already act as intermediaries in arranging commercial real estate equity
financing (transfer of title, control, and risk arrangements for projects) and often finance
the underlying projects.
5 Conference of State Bank Supervisors, “Real Estate Brokerage Chart,” on Web Site
[http://www.csbs.org/government/legislative/realestate/re_chart.htm].
6 12 CFR 225.86(d).

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(5) Several diversified financial companies provide realty services beyond their more
traditional banking, securities, and insurance services. Some realty-based companies offer
bank-like services, most visibly mortgages.
(6) Some savings associations and state-chartered banks already provide these kinds of
real estate services.
Opposing the Proposal.
(1) GLBA specifically prohibits FSs from engaging in real estate development and
investment. Thus, its intent may have been to restrain new realty powers of bankers.
(2) Real estate brokerage and property management are commercial activities. Their
necessary hands-on sales skills are far different from lending.
(3) Real estate brokerage and property management involve negotiation of realty
transactions. That role has been forbidden to FHC s as “finders.” FHC finders may not
engage in any activity requiring registration or licensing as a realty agent or broker.
(4) One study states that the real estate industry is highly competitive and efficient, much
more productive in these ways than financial services generally.7 To the extent this is
true, banking companies would presumably bring almost no net benefit to real estate
brokerage and property management.

(5) Entry of deep-pocket banking companies, which benefit from federal assistance
including deposit insurance, might drive out brokers and property managers, which
typically operate on a much smaller scale.

(6) Competition for lending could decline if buyers believe that one-stop realty transacting
and financing would ease credit approval. Mortgage lenders not involved with the
brokerage part of realty transactions might lose business.
Arguments Concerning Customers (Consumers and Businesses)
Favoring the Proposal.
(1) Customers could benefit from lower costs and greater convenience if one organization
provided most realty services bundled together. Transaction details (paperwork) often
overwhelm buyers and sellers of property. In addition, consumers, including buyers of
these services, generally prefer more competitors in a field to fewer.8
(2) Clients of banks involved might not have to face the delays and complications of
start-from-scratch checking of creditworthiness, which their bankers already know.
7 This finding is a conclusion of a study by Leonard Zampano of the University of Alabama
presented during a residential forum at the NAR Midyear Legislative Meetings and Trade Expo,
Washington, D.C., May 17, 2001.
8 American Bankers Association, “Consumers Want More Real Estate Competition, New Survey
Reveals,” on Web Site [http://www.aba.com/Press+Room/051501realestate.htm ].

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(3) Laws against forcing customers to obtain both non-lending services and loans from
banking companies (which observers call”tying”) would still restrain market power of
companies providing banking and realty services jointly.
Opposing the Proposal.
(1) Customers might believe that obtaining realty brokerage or property management
services from bankers would ease credit approval for their financing. Better deals may
be available from competition among multiple providers in unbundled form.
(2) Customer service could suffer with fewer specialized providers. Bank credit standards
might not be appropriate for realty transactions requiring flexibility, especially when, as
now, tightening credit quality concerns (“credit crunches”) cut back bank lending.
(3) Low and moderate-income households lacking bank relationships might not benefit
from bundled realty services designed for bank clients of greater resources.
Developments and Legislation
2001. The original proposal remained open for comment until May 1, 2001. The
House Subcommittee on Financial Institutions and Consumer Credit held a hearing on
May 2, 2001, in which many Members voiced disapproval of it. The NAR also raised
conflict of interest questions. Two members of the seven-person Board of Governors of
the Fed come from the banking industry. The NAR questioned whether they can be
impartial in voting on the controversial regulation. On December 6, 2001, Representative
Calvert introduced H.R. 3424, the Community Choice in Real Estate Act. It would have
prohibited banking companies from engaging in real estate brokerage or real estate
management activities. Supporters believed the regulatory proposal went around the
congressional intent of GLBA, by redefining real estate activities as financial activities,
thus mixing banking with commerce, and would be anticompetitive as well. Senator
Allard introduced the Senate version, S. 1839, on December 18. H.R. 3424 gathered more
than half the House as cosponsors, while S. 1839 attracted 14 cosponsors.
2002. In view of the controversy over the proposal and priorities such preventing
the funding of terrorism, the Treasury and the Fed announced they would not be ruling on
it until 2003. Congress continued to examine it. The House Subcommittee on
Commercial and Administrative Law held an “Oversight Hearing on Proposed Federal
Reserve/Treasury Department Real Estate Brokerage and Management Rule,” May 16.
The Senate Subcommittee on Financial Institutions held its hearing on “Bank and
Financial Holding Company Engagement in Real Estate Brokerage and Property
Management,” May 23. On July 24, the House Subcommittee on Financial Institutions
and Consumer Credit held a hearing on H.R. 3424.

On July 9, 2002, the House Appropriations Committee approved an amendment to
the Treasury Appropriations bill, H.R. 5120, prohibiting the Treasury Department from
issuing the controversial rule, stating: “ The Committee includes a new provision that
prohibits funds in the bill from being used to issue regulations relating to the
determination that real estate brokerage is an activity that is financial in nature or
incidental to a financial activity. “ Since the(non-appropriated) Fed and the (appropriated)

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Treasury must jointly issue any regulation allowing realty powers for banking companies;
if Treasury cannot, then the Fed cannot either. The House retained this amendment,
offered by Representative Northup, on July 24, when it passed H.R. 5120. It did not
appear in the Senate’s counterpart appropriations measure.
2003. On January 7, 2003, Representative Calvert and Senator Allard reintroduced
the Community Choice in Real Estate Act, now numbered H.R. 111 and S. 98, to prohibit
FHCs and national banks from engaging, directly or indirectly, in real estate brokerage or
real estate management activities. Both measures are identical to their predecessors. The
House bill now has 236 cosponsors, more than half the House, while its Senate
counterpart has 22, including Banking Committee Chairman Shelby.
Supporters of the legislation include the Building Owners and Managers Association,
Consumers Union, Institute of Real Estate Management, International Council of
Shopping Centers, National Affordable Housing Management Association, and National
Association of Homebuilders. Opponents include the American Bankers Association,
America’s Community Bankers, Consumer Bankers Association, Independent
Community Bankers of America, Financial Services Roundtable, Realty Alliance, and
Real Estate Services Providers Council.
The 108th Congress passed the basic federal spending package, P.L. 108-007, early
in 2003. It retained the prohibition amendment, disallowing any funds for Treasury
Department issuance of the bankers’ real estate regulation in fiscal 2003. Thus, the law
precluded the Fed from issuing it as well.9
Representative Northup reintroduced the blocking amendment on July 11, 2003. The
Transportation, Treasury, and Independent Agencies Subcommittee of the House
Appropriations Committee agreed to it on July 11, 2003. On July 24, the Appropriations
Committee voted to approve the Transportation, Treasury, and Independent Agencies
Appropriations Act, 2004, H.R. 2989, including that amendment as its Section 634. The
measure would extend the current ban until Sept. 30, 2004, since it prohibits fiscal year
2004 funds from being used to implement the proposed rule. Representatives Oxley and
Frank have said the Financial Services Committee rather than the Appropriations
Committee should deal with the issue in the House, repeating their position on the
Northup Amendment to the FY2003 spending measure.10
9 Adam Wasch, “Omnibus Package Includes Obstacle to Banks Becoming Real Estate Brokers,”
Daily Report for Executives, Feb. 13, 2003, p. A-32; and, Wasch, “Real Estate Brokerage Rule
on Hold Until Congress Moves, Fed’s Olson Says,” Ibid., Feb. 20, 2003, p. A-17.
10 “House Appropriators Approve Amendment to Block Treasury Real Estate Rule in FY ‘04,”
Ibid., July 14, 2003, p. A-27; and, Rob Blackwell, “Real Estate Round Two: Realtor Win Looks
Likely,” American Banker Online, July 29, 2003.

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