National bank executives are quickly mapping out plans to take advantage of a new rule allowing them to offer many financial services directly.
The rule, finalized by the Office of the Comptroller of the Currency last week, will let banks avoid the often cumbersome and costly requirement of operating certain businesses in holding company affiliates.
In interviews last week, national bank executives said they will pursue municipal revenue bond underwriting, real estate brokerage, data processing, and equipment leasing - activities that are banned to banks or strictly limited but considered relatively noncontroversial.
Others plan to push the envelope and see how far the OCC will go.
One such maverick is Terrence Murray, president and chief executive of Fleet Financial Group Inc. In an interview, Mr. Murray said Fleet will ask the agency to let it sell insurance products without any geographical restrictions.
The new regulation is "much broader," he said, than the loophole in the National Bank Act that permits banks to sell insurance from small towns.
"The town of 5,000 ruling is just another convoluted way of doing things, like having one of our hands tied behind our back," Mr. Murray said. "We would hope the OCC sees it the same way."
Insurance underwriting, a new realm for banks, is further down the road - but not out of the picture - for Fleet, he added.
"We don't have the skills for (underwriting) right now, but we don't want to be precluded from it," Mr. Murray said.
However, insurance underwriting poses new and untested risks - risks the Comptroller's Office may not want to supervise. In addition, the possiblity that banks may be able to underwrite insurance has already sparked a political uproar from insurers.
Most bankers said they expect to use the so called "op-sub" rule as a convenient means to enter or expand into less controversial businesses. Several said that direct subsidiaries are less costly to set up and operate than banking holding company affiliates such as section 20 securities units.
"If you have to build up a completely separate entity, then you have to go through the entire corporate structure bit with a completely separate board of directors," said Scott L. Graham, chairman and chief executive of First National Bank and Trust of Broken Arrow, Okla. "It's like having more than one bank to manage."
"Insurance and securities are the sexy topics, but ... the best part of this rule is that it will enable us to rationalize the way we conduct fairly mundane and everyday activities," added Steven A. Bennett, general counsel of Banc One Corp.
The $100 billion Columbus, Ohio, company is contemplating using the op- sub rule to enter the equipment leasing business, Mr. Bennett said.
"No one will deny that it is incidental to banking, but the ability to do it in national banks has been circumscribed," he said. "We are going to look carefully at what our nonbank competitors are doing, and leasing- related activities will warrant some very close scrutiny."
Bankers at institutions of all sizes said they hope to underwrite municipal revenue bonds, which are securities issued by state or local governments to fund the construction of roads, bridges, and other infrastructure projects.
Dan G. Furphy, president and chief executive of the $90 million-asset First National Bank of Wyoming, Laramie, said the tax-exempt revenue from these securities would be a boon for his bank.
"We will definitely be looking at financing some municipal revenue bonds," Mr. Furphy said. "We wouldn't have to set up a separate affiliate to do it in."
Others, such as First National's Mr. Graham, are eyeing the real estate business. Customers of his $125 million-asset institution would benefit from a real estate brokerage and management subsidiary, he said.
"Banks have been excluded from that market," Mr. Graham said. "I have a lot of customers who own real estate outside the immediate area and need someone reputable to represent their interests."
Other bankers hope to use the rule to expand their information processing, which could range from check clearing to managing billing transactions for nonfinancial companies.
National banks have been allowed to engage in data processing businesses, but have been restricted in how much business they can conduct in areas not related to banking.
"In interpretive letters, we have set some standards about the extent of excess capacity that can be used for nonbanking type information processing," said OCC Chief Counsel Julie L. Williams.
Barnett Banks, for example, wants to sell its expertise in image processing to other banking companies through a direct subsidiary, according to spokeswoman Jerri Franz.
In addition, Barnett hopes to expand its ATM network, and the fact that the op-sub rule abolishes the requirement that banks file applications for new ATMs is a big plus, she added.
"Initially, the greatest implication for Barnett is that quick turnaround time - it will be a real bonus," Ms. Franz said.
The OCC will begin considering requests to offer new and expanded services through operating subsidiaries on Dec. 31, when the rule takes effect.
"While we will be making some very careful judgements on the sorts of activities we'll permit, we basically want to hear which types of additional activities and flexibilities banks would be interested in," Ms. Williams said.
