WASHINGTON -- A pending Supreme Court case addressing whether banks can sell annuities will help shape congressional debate on whether to let banks underwrite municipal bonds and other securities, an attorney said yesterday.
The case, NationsBank of North Carolina v. Variable Annuity Life Insurance, revolves around an interpretation by the U.S. comptroller of the currency that annuities are not a type of general casualty life insurance and therefore may be sold by national banks in any geographic area.
The National Bank Act prohibits banks from selling such insurance in towns with more than 5,000 people.
The Fifth Circuit U.S. Court of Appeals in August 1993 rejected the comptroller's interpretation, ruling that annuities are a form of insurance. But the Clinton Administration urged the high court to defer to the comptroller's interpretation, saying annuities are more like securities than insurance.
The outcome of the Supreme Court case, which is part of a long-running dispute pitting banks against insurance companies that typically sell annuities, is expected to be a driving force in legislative debate over banking deregulalion, said Maureen Mahoney, a litigation attorney with the firm Latham & Watkins here.
Congress is expected to debate legislation next year that would reform the banking act and the Glass-Steagall Act to allow banks to sell insurance and underwrite municipal bonds and other securities. Glass-Steagall was passed in 1933 to prohibit commercial banks from engaging in investment banking activities, but since then courts the MSRB about how their Rule G37 is working in the broker-dealer community," he said.
The role, which took effect earlier this year, bars municipal dealers that make contributions to issuer clients from doing business with those clients for two years.
Kintzinger said the association also wants to talk with SEC officials about whether political contributions should be disclosed in official statements.
"It is greatly open to question whether investors believe it is material to know what political contributions may have been made between principals in a transaction," he said.
The SEC's interpretative release suggests that all business and financial relationships between parties in a transaction are material and should be disclosed in primary offering statement, Kintzinger said.
"Certainly there are some financial relationships between parties which are material and should be disclosed. But in the mainstream there are many relationships between parties in transactions that do not rise to that level," Kintzinger said.
On the tax side, Kintzinger said he expects the main issues will be IRS and SEC bond enforcement, the IRS' efforts to draft private activity bond rules, and derivatives.
Kintzinger said that he and other NABL members have long believed that the IRS and SEC should develop strong bond enforcement programs as an alternative to "over-regulation." The IRS has dramatically increased its audits of municipal bond issues, but Kintzinger said one concern is whether IRS field agents are knowledgeable enough about tax issues in the bond area. Kintzinger said the forthcoming private-activity bond rules will be very important to the bond lawyers. But he said he is concerned that because "this is such a murky and complicated area definitionally and practice-wise, it is going to be very, very difficult, through regulations, to develop an approach that works for everyone." Derivatives issues are growing in importance, he said, because "we're finding more and more that general bond practitioners are having to address derivative products in their work with issuers."
