Just when we thought the three-decade-old war to modernize the U.S. financial system was won, the dragons from battles past rise up to fight another round.

This time the dragons come in the form of real estate brokers seeking to protect themselves, and their fixed commissions, from competition. It’s all so reminiscent of the long fight waged by insurance brokers in their ultimately unsuccessful war against free markets.

The Gramm-Leach-Bliley Act permits financial holding companies to engage in a broad range of financial activities and authorizes the Federal Reserve and Treasury to expand the list of permitted bank activities. Among the activities the agencies are currently considering adding is real estate brokerage.

That real estate brokerage is financial in nature is hardly debatable — nor is it debatable that banks and thrifts have vast experience in real estate. Banks and thrifts are major lenders against real estate, and they own considerable real estate either directly or on behalf of clients in trust departments.

Some real estate brokers are waging a vigorous campaign against allowing financial holding companies to engage in real estate brokerage. They offer a number of specious arguments, including the contention that authorizing real estate brokerage would breach the wall separating banking from commerce.

Brokerage of insurance, stocks, and bonds is permissible to financial holding companies. There is no basis whatsoever for putting real estate brokerage in a separate category. Moreover, banks in half the states of the United States are already authorized to engage in real estate brokerage, either directly or through subsidiaries.

The real estate brokers’ next contention is that their business would threaten the safety and soundness of banks. They even conjure up images of the Asian banking crisis. The Asian crisis had a number of causes, the most important being extremely lax supervision, but brokerage of real estate was not one of them. Brokerage activities would let banks and thrifts act as agents, not principals, and therefore enhance earnings without putting significant capital at risk.

Next, the real estate brokers contend that banks would use federally insured deposits to subsidize their brokerage activities. There is less to this argument than meets the eye.

Brokerage requires little funding — whether from deposits or any other source. Moreover, banks are prohibited from lending on a preferred basis to affiliates. Finally, banks pay far more for the federal safety net than it costs to operate the system. Even if they were using deposits to fund their brokerage activities there would be no subsidy.

The brokers’ remaining argument is that bank customers don’t want real estate brokerage from banks and will do business with banks only if forced to through tying arrangements. Tying is clearly illegal, so if customers don’t want the service, banks will not succeed in selling it.

Make no mistake about it: Real estate brokers are opposed to banks’ offering real estate brokerage solely because brokers do not want the competition. The business is dominated by a handful of very large companies offering a full array of financial products. They do not compete on price and do not want to risk that new competition would force them to do so.

All their arguments have been heard many times before. It’s time to slay the remaining anti-consumer dragon and resume our long march toward a modern, competitive financial marketplace that is the envy of the world.

Mr. Isaac, former chairman of the FDIC, is chairman of the Secura Group, a financial consultancy based in Washington, and of Secura Burnett Co., an executive search firm in San Francisco.

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