Powers of banks in Puerto Rico to be extended
Senate Bill 814, pending the governor's signature at press time, adopts what is known as a "wild card" provision, which will permits banks operating in Puerto Rico to engage in any activity allowed to national banks.
Both the Puerto Rico Bank Act and the National Bank Act contain lists of activities that banks may engage in. In addition to what is to be expected, like lending money and receiving deposits, banks may invest in certain types of stock and may own real estate for particular purposes. Both laws also have a catch-all provision, the likes of "any other related activity." Of course, it is the government regulators who decide what activities are so related and which are not. In the case of Puerto Rico, the regulator is the Commissioner of Financial Institutions; and the Comptroller of the Currency is his federal counterpart for national banks.
Sometimes the text of the law itself limits the scope of the power of a regulator to attach an activity to traditional banking acts. An amendment to the law is essential in these cases; although on occasions, as will be seen later, regulators-particularly the feds-can be enormously creative.
In order to keep up with the Joneses, state legislatures came up with the wild card clause idea. The term "wild card" was originally used in Poker and other card games to denote a card that could stand for any other, but has since evolved to depict any unidentified or unpredicted factor. Why should national banks be allowed to do things that states did not let their local boys do? Since nothing could be done about that (states have no jurisdiction over national banks), the solution was to adopt by reference whatever the Comptroller finds to be acceptable, without having to amend the state's banking statute every time.
Senate Bill 814
Senate Bill 814 does just that. After the long list of permitted acts, it inserts a provision that sanctions that banks on the island may engage in "any activity expressly authorized to a national bank by federal law or administrative ruling of the Office of the Comptroller of the Currency," albeit subject to:
the same limitations as federal law or the Comptroller may impose,
any local licensing requirement applicable to the activity, and
giving notice to the Commissioner of Financial Institutions (who may within 30 days condition the activity).
One of the areas in which the Puerto Rico Bank Act and the National Bank Act are very specific is ownership of real estate. In the case of Puerto Rico, banks on the island may hold real estate only for the following purposes, and no other:
establish their offices and branches (although they are allowed to lease out unneeded space-like the top 16 floors);
serve as employee residences (makes you think of the old Royal Bank bachelors' quarters on the top floor of San Juan branch); and
receive property in mortgage foreclosure procedures, deeds in lieu of foreclosure, or in payment of unsecured debt.
Banks must dispose of the latter group in five years, subject to extension by the Commissioner.
Can a bank own a hotel (other than one repossessed)? It's not listed. But keep reading.
On December 5, 2005, the Comptroller of the Currency issued Interpretative Letters # 1044 and 1045, ruling that a national bank can legally develop a 150-room hotel to provide lodging for its out-of-area visitors. These visitors were identified as employees, customers, vendors, shareholders and directors. The ruling pointed out that the visitors in question routinely visited the city on bank-related business; and that prior to the ruling they were housed in commercial hotels. The bank intended to use more than 50% of the occupied rooms to lodge such visitors; and it aimed to let the rest of the rooms to the general public. The 150 rooms were explained as necessary because that was the smallest number of rooms that the hotel management company would agree to manage.
The Comptroller indicated that the hotel was acceptable because such building "qualifies as bank premises and, therefore, is permissible under 12 U.S.C. § 29 [of the National Bank Act]." "The hotel would be constructed on existing bank premises, currently used as a parking lot and adjacent to the bank's corporate headquarters in downtown. The bank would remain the sole owner of the real estate and would be the sole owner of all improvements resulting from the development." "The Bank would . . . contract with a national hotel management company to manage the hotel."
The bank's business objectives were described as reducing its annual lodging expense for visitors, and improving the overall quality of their visit.
A similar ruling- Interpretative Letter # 1042-sanctioned ownership of a condominium building to house the same type of visitors (auditors were added to the list this time).
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