A battle of heavyweights.

Author:Milligan, Jack
Position:Cover Report: Industry Trends
 
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LIKE MOST TURF BATTLES THAT GET waged in Washington, D.C., the effort to keep banks out of the real estate brokerage business is mostly about money. But it's also about control of the customer. Some banks want in because they think it will further their retail strategy of offering one-stop shopping. A great many small Realtors are equally determined to bar the door because they're afraid the banks will put them out of business.

And like many Washington turf battles where impassioned pleas are made to Congress, the rhetoric in this one is a little overheated. Permitting banks and thrifts to offer real estate brokerage services will not result in a reduction of competition, as the Washington, D.C.-based National Association of Realtors (NAR)--the industry's primary lobbying arm--contends. Nor is it likely to end the livelihood of hundreds of thousands of real estate agents or turn them into salaried wage slaves, as NAR and others have suggested.

Homebuyers it seems would most likely benefit from the entry of new companies into the real estate business, as would small realty firms that would find a new source of buyers should they choose to sell out. And banks would be able to market a variety of products to their realty customers, including mortgages, home-equity loans and checking accounts.

But it's questionable whether the banking industry would end up dominating the real estate business--or if most banks would even be interested in offering those services.

Twenty-six states currently allow their state-chartered banks and thrifts to own real estate agencies, and yet most of those institutions have not taken advantage of the opportunity. Cross-selling customers is an extremely difficult strategy to pull off, and many banks might decide that owning a brokerage business isn't worth the effort--particularly when you consider the significant cultural differences between the real estate business and a traditional branch bank.

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"I don't think that a lot of commercial banks would want to get into the business," says Howard Hanna, president and chief executive officer at Hanna Holdings Inc., a large Pittsburgh based realty company.

For its part, NAR says it will continue to meet the banking industry's challenge head-on. Indeed, NAR is determined to win from Congress a permanent ban against banks entering the real estate brokerage business. "We're confident we'll get it through," says NAR Vice President Steve Cook, "and we won't stop until we do."

Federally chartered banks and thrifts, as well state-chartered banks in 26 other states, are not permitted to provide real estate brokerage services. Traditionally, real estate brokerage has been defined as a commercial rather than financial activity, and a hallmark of banking regulation in this country has long been the separation of finance and commerce. Unlike their counterparts in countries like Japan, U.S. banks are not allowed to directly own stock in nonfinancial companies or engage in activities that are not financial in nature.

However, when Congress passed the Gramm-Leach-Bliley Act of 1999--which sought to reconcile an out-of-date regulatory structure for banks with the realities of a highly evolved financial services marketplace--it specifically...

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