Comptroller Dugan Issues Statement Regarding Real Estate Rulings

WASHINGTON – Comptroller of the Currency John C. Dugan issued the following statement today correcting a fundamental misunderstanding of the effect of three recent OCC interpretive letters:

Based on news reports this week, there seems to be a fundamental misunderstanding about the effect of three recent OCC interpretive letters dealing with the ability of banks to hold real estate used for the banks' business and to provide financing involving an indirect interest in real estate. As a result, I want to set the record straight. These letters were not intended to expand, and do not expand, the authority of national banks to hold real estate. They also do not represent an erosion of the separation of banking and commerce. And they have nothing to do with real estate brokerage or preemption.

Specifically, two of the letters dealt with the ability of two different banks to establish facilities on property currently owned by each bank. Interpreting a specific provision of the National Bank Act, both letters follow well-established judicial precedent – dating back to 1904 – and past OCC interpretations. This precedent expressly recognizes the authority of a national bank to invest in property used for the bank's own operations, offices, and lodging for employees and customers – and to lease to others the portion of the property that it does not need. Federal law also places limits on the amount of a bank's capital that may be invested for such uses. The two approvals fall entirely within these standards and limitations.

The third letter allowed a bank to provide financing to a limited liability company that would operate a wind energy project and would hold an interest in associated real estate. While the bank's financing took the form of an interest in the LLC in order to utilize tax credits, it was structured to be substantially identical to a loan transaction. The bank underwrote the transaction in the same way that it would underwrite a comparable extension of credit to the LLC. And consistent with a standard credit transaction, the bank would have no involvement in the management or operation of the project. The OCC's opinion was based on prior precedent addressing similar transactions involving optimizing use of tax credits, going back over a decade.

Finally, the opinion used a federal standard to define "real estate" as that term is used in a particular federal statutory provision in the National Bank Act that limits a national bank's real estate holdings. This use of a federal standard to define a term in federal law has nothing to do with the application of state law to national banks. It simply is not an issue of federal preemption.