The banking industry, already upsized thanks to corporate mergers, now seeks a piece of the real estate market. Last week, on the pretext that consumers want more choice when it comes to buying homes, the American Bankers Association (ABA) lobby gave Monopoly game sets to all the members of Congress. The message: "The more players the better in the real estate game."
A proposal before the Treasury Department and the Federal Reserve would allow banks to have their own real estate agents, list properties, and own their own real estate offices. The banks want Congress to leave that proposal alone.
But their "more players the better" line is suspect. When a bank can get in on the ground floor with a customer in buying a home, other players are likely to be forced out, leaving fewer options for consumers. A recent independent analysis shows that letting banks enter the real estate business would create less competition in the industry.
Indeed, Congress should prevent that proposal from going forward by passing legislation that would classify real estate brokerages as nonfinancial, commercial activities.
Allowing banks to both finance property purchases and sell property creates a conflict of interest that could hurt consumers by constricting their choices. A real estate agent has a strong incentive to sell a house; a bank acting in that capacity has an even stronger desire to not only sell the house, but to sell it as quickly as possible and offer a plethora of other financial-related services.
Congress decided to keep up a wall between banking and commerce in 1999, when it allowed banks, stock brokers, and investment firms to merge as part of a financial modernization act.
Banks say, in part, that because they're already involved in making loans, they should have access to home buyers. But where would that end? Banks as car dealers? Clothing-store owners?
Some savings institutions and commercial banks already are allowed to perform real estate transactions. And, the ABA argues, nothing untoward has come from that. But commercial banks have a sorry pattern of overextending themselves when the market's good, and not giving loans when the market's bad.
Let banks do a better job of banking. And let the current players on the Monopoly board negotiate the buying and selling of houses.