WASHINGTON — Banking industry groups want the Office of the Comptroller of the Currency to withdraw a proposal that would impose new restrictions on how banks use real estate premises that they own.
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But that would throw decades of bank property management practices into doubt and would pose new occupancy challenges for institutions in light of the COVID-19 pandemic, according to a comment letter by three trade groups.
“We believe the proposal should be withdrawn because it would eliminate the necessary flexibility for navigating the wide variety of facts and circumstances that can pertain to premises investments and changes to real estate needs and use,” wrote the American Bankers Association, Bank Policy Institute and Independent Community Bankers of America. “Changes are particularly likely to occur in the near future as a result of the pandemic.”
The letter said under the proposal banks would be forced to quickly shed properties if in-person staff levels go down.
"If the bank’s need for staff at a particular office location over time decreased, whether because of changing market needs (such as increased use of online banking) or increased efficiency, a bank could be forced to sell the entire property if it is unable to dispose of a portion of the facility or land to meet the 50 percent usage threshold, despite still having a good-faith use for the former premises as bank premises," the groups said.
For over a century, federal law has subjected banks to limitations when purchasing property to discourage bankers from engaging in real estate speculation. A given real estate transaction must meet certain requirements to pass regulatory scrutiny, usually by proving the land will be necessary to conduct the business of banking.
At the same time, bank regulators have allowed for certain exceptions on a case-by-case basis. The OCC has opted not to use concrete standards to evaluate bank property usage.
With January's proposal, however, OCC regulators would use standardized criteria to determine whether a given property is in fact “necessary” for a bank to do its business.
Under the new occupancy test, more than half of a given bank property “must be used by, or for, bank persons to facilitate bank business operations,” according to the text of the proposal.
According to the ABA, BPI and ICBA, however, that occupancy standard “would severely curtail current and planned use of many bank premises, which would be inconsistent with case law and decades of precedents.”
“It has long been recognized that each parcel of real estate is unique,” the groups wrote in their letter. “A one-size-fits-all rule would not be an effective approach for the many different premises scenarios that may be considered by banks. For example, the size requirements of bank premises vary tremendously and could range from as little as 10 square feet for ATM locations to millions of square feet for bank headquarters and technology facilities.”
The trade associations urged the OCC to dispense with a rules-based approach to updating bank property ownership regulations particularly in light of the pandemic, which many analysts expect will leave a lasting effect on commercial real estate.
“It is difficult to identify a time when banks’ future premises needs have been more uncertain,” the trades wrote in their letter. “The uncertainty surrounding the longer-term impact of the pandemic on workspace requirements, including occupancy limitations implemented for safety reasons and continued work-from-home arrangements, makes it nearly impossible to evaluate meaningfully the potential impact of the proposal.“
In a statement, OCC spokesperson Bryan Hubbard said the agency “appreciates all of the comments from the stakeholders of the federal banking system on the proposed rule regarding National Bank and Federal Savings Associations premises it received prior to yesterday’s deadline. The agency looks forward to reviewing those comments as it considers its next steps in this matter.”
