Banks Might Widen Their Role
Beyond Traditional Lending

Two major banks received the green light from regulators to develop and own large hotel and office properties, potentially opening the door wider for banks to the commercial real-estate business beyond their traditional role as lenders.

National banking laws generally bar banks from owning and developing commercial real estate unless the buildings are predominantly occupied by employees doing bank business. City skylines are dominated by headquarters buildings owned and financed by banks. Many banks rent out some office and first-floor retail space in their buildings, and such arrangements have been approved as lawful.

While banks long have been excluded from all but the financing end of the real-estate business, they are trying to enter other aspects, such as developing projects and competing in the housing market.

Regulators have been wary of allowing bank portfolios to have a high concentration of loans in the volatile commercial real-estate market, for fear a sudden economic downturn could impair bank capital. There also are strict rules for real estate acquired by banks through foreclosure to be liquidated quickly. National bank regulators say they will soon publish interagency guidance directing lenders to meet certain capital, underwriting and risk-management standards to match loan growth.

But recently the Comptroller of the Currency, a unit of the Treasury Department that regulates national banks, incrementally broadened its interpretation of permissible development activities. In postings on its Web site, the OCC approved major real-estate projects by two banks that go beyond the scope of typical bank real-estate development. The banks aren't identified by name, but officials say the institutions referenced are PNC Financial Services Group Inc., of Pittsburgh, and Bank of America Corp., of Charlotte, N.C.

PNC got the go-ahead to invest $122 million in a complex near its headquarters that will include a 30-story building for offices, a 150-room hotel and at least 30 condominiums. PNC employees are projected to occupy 22% of the new office and hotel space. PNC spokesman Brian Goerkey said the bank expects the complex "to be a catalyst to attract additional downtown investment."

Bank of America plans a 150-room, 15-story Ritz-Carlton hotel as part of its headquarters complex in Charlotte. The OCC said it approved the plan, largely because the bank says that eventually it will account for 50% of the annual hotel occupancy. "It's a situation warranted by the need for a quality hotel to house bank visitors, clients and vendors adjacent to the headquarters," said bank spokesman Terry Francisco.

Some banking consultants and lawyers say the rulings could have significant import. "Big national banks are potentially major players in the commercial real-estate market based on the powers the OCC has just granted," said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., a Washington consulting firm.

For decades, regulators have sought to maintain barriers between banking and certain commerce, such as real-estate development. The concern has been that banks, through their access to cheaper capital, could corner the market and reap big profits by controlling rents.

Legislation in 1999 removed some barriers between banking and commerce, triggering a number of political skirmishes. For instance, community banks have been working to derail efforts by Wal-Mart Stores Inc. to get a loan-company charter. They say the giant retailer could use bank branches in stores to eventually put small-town lenders out of business.

The National Association of Realtors has fought to hold off implementation of a Treasury Department and Federal Reserve rule that would allow banks into the real-estate brokerage business. The trade group has backed legislation passed by Congress since 2001 that bars banks from being real-estate brokers.

The real-estate trade group said it is studying the new OCC rulings. Realtors are less concerned with banks expanding into commercial development than with the industry's efforts to enter the brokerage and property-management businesses, said Steve Cook, a spokesman.

The OCC, criticized often by consumer groups for being a cheerleader for banks, is playing down the decision. Top agency officials who signed off on the projects declined to comment, but spokesman Bob Garsson said the rulings "won't lead to an expansion of national bank real-estate powers."

"If it does move the fence, it's consistent with the way the comptroller has done things for a long time: building block on building block, expanding powers in a logical way," said Chuck Muckenfuss, a banking lawyer at Gibson Dunn & Crutcher in Washington.

Meanwhile, the Federal Reserve has taken a much tougher stand against allowing the state-chartered banks it regulates to move more broadly into commercial real-estate development, Ms. Petrou, of Federal Financial Analytics, said. A Fed spokesman declined to comment.

-- Christine Haughney contributed to this article.

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