What started as a turf battle over real estate brokerage now has evolved into a full-scale, no-holds-barred war between the nation's banking and real estate special interest groups. These groups now have dragged the U.S. Congress, the Federal Reserve Board and the Treasury Department into the fray. So what began as a turf battle for business now has become a turf battle for the federal government, pitting independent agencies against the legislative branch.

During 2001, the Fed and Treasury considered whether to allow banks to offer real estate brokerage and property management services. And after months of intense lobbying and an extensive public relations campaign which cause the Fed to put off a decision in favor of the banks, the real estate community is taking its argument to Capitol Hill.

The Fed and Treasury are hardly neutral parties in this matter, given their close relationship with the nation's banking community. The question faced by the Fed has been whether real estate brokerage and management are "financial services" which are "in nature or incidental to financial activities?" The term "financial services" is so broad that in theory it could also include car sales, supermarket transactions, and vending machine purchases.

With time running out, and as the Fed prepares to allow banks into this new line of business, the real estate industry has persuaded several dozen members of Congress to try and block the Fed's rulemaking authority.

Legislation introduced earlier this month into the U.S. House would effectively separate banking and commerce, undermining the Fed's efforts to expand banking powers granted by the 1999 Gramm-Leach-Bliley act (GLBA). The bill comes close to having 70 co-sponsors from both parties, all of whom claim that allowing bankers into the real estate business would harm consumers. They also contend that the Fed does not have the power to let bankers in on the brokerage game.

The National Association of Realtors (NAR) has staked much of its opposition on a claim that increased competition from large banking firms would eat up hundreds of existing small brokerage firms. This argument likely did not carry much weight with the supremely capitalist Fed, which often welcomes competition at any cost.

"At stake is nothing less than the way property is bought and sold in America today," said Martin Edwards, president of NAR. "Our system of home ownership is the envy of the world.þ Today, the housing economy is more important to the national economy than ever before and is the lynchpin of our economy's success today in holding our economy above the water."

If banks have their way, they will take home a significant prize. Already reveling in the recently won right to broker securities, banks would be able to offer clients a full range of financial services, from banking and investing to home buying and home improvement loans.

Of course, bankers are outraged by the real estate industry's actions. They agree with the Fed's early rulings that real estate brokers and management services are financial in nature. Therefore, bankers reason, they should be allowed under the 1999 law.

"Real estate brokerage authority does not involve the mixing of banking and commerce," said Edward Yingling, executive director of the American Bankers Association (ABA). "Congress never indicated that virtually riskless real estate brokerage and management activities constituted a 'commercial' activity. There is no legislative history supporting the National Association of Realtor's claim that GLB prohibits banking institutions from offering these services. GLB clearly left that determination to the Treasury and the Federal Reserve. The notion that this will allow regulators to deem grocery or furniture sales to be open to financial holding companies is absurd at best."

But Congressional backers of the real estate industry's blocking measure expect a huge victory in the House. In fact, Rep. Steve LaTourette (R-Ohio) said he thinks the bill will garner at least 400 votes. No word yet on action in the U.S. Senate, which has been stymied of late with partisan bickering over a financial stimulus package and White House nominations.

"It was perfectly clear during the Gramm-Leach-Bliley act debate that it was the intent of the Congress to keep banking and commerce separated," said Rep. Tim Holden (D-Penn.). "As a matter of fact, I believe there were three separate votes during the debate on the floor to do that. This is an obvious attempt by the banking industry to circumvent the intent of the Congress.

"And I can tell you that my family spend a hundred years in the insurance and real estate business, and if we are going to allow the banks to have one-stop shopping, we are going to put realtors out of business, and that is going to be ultimately uncompetitive, and it's not going to serve the best interest of the American people," Holden added.

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