Insurance Trouble in Commerce Reform Bill

The House Commerce Committee's long-awaited financial reform proposal is getting a hostile reception from banking industry groups.

Preliminary versions of the plan unveiled late last week would bolster state regulators' power to restrict bank insurance operations. That move is reinforcing industry opposition to pending financial reform legislation, banking lobbyists said.

Sources who have been briefed on the Commerce Committee plan said the measures would strip the comptroller of the currency of most power to permit new insurance activities for national banks.

The proposals are tougher than restrictions passed June 20 by the House Banking Committee. Though Commerce Committee members have pledged to roll back the comptroller's authority, bankers nevertheless had held out hope that the panel's first concrete proposals would be more favorable to the industry.

"If the final bill looks like this, banks will be universally opposed," said one lobbyist who asked not to be identified.

A Commerce Committee spokeswoman confirmed that staffers had shared "legislative concepts" with banking industry executives, but stressed the bill is still in its early stages."We're listening to all involved parties and trying to put together a consensus," she said.

The spokeswoman wouldn't identify the banks involved, but sources said they included Banc One Corp., First Union Corp., Fleet Financial Corp., and NationsBank Corp. Officials from those institutions would not comment on the meetings.

The American Bankers Association and other banking trade groups are opposing the House Banking Committee's legislation, in part because states could ask the National Council on Financial Services to strike down future comptroller's rulings regarding new insurance powers. The council would be created under the Banking Committee bill to resolve disputes between financial services regulators.

Sources familiar with the Commerce Committee plan said that proposal would strike even harder at the comptroller's power.

For instance, the plan would eliminate the National Council on Financial Services and instead would force the courts to settle differences between state officials and the comptroller.

The Commerce Committee plan would also put states on equal footing with the comptroller, exempting disputes from a 1984 Supreme Court decision requiring courts to defer to federal regulators.

"This might be the toughest issue between banks and the Commerce Committee," said one banking lobbyist, who asked not to be named.

But Gary Hughes, chief counsel for the American Council of Life Insurance, argued that Congress should not allow a federal regulator to usurp state authority. "Disputes should be decided on their merits, not because of some artificial doctrine," he said.

Bank lobbyists also complain that another measure could put at risk some current banking businesses, such as underwriting letters of credit and derivatives. One measure in the draft would forbid banks from underwriting any provision that a state regulator has deemed to be insurance as of Jan. 1, 1997.

Sources complained that the provision would allow state regulators to define new versions of existing bank products as insurance.

Bankers have pushed the committee to exempt those products and future variations from the definition of insurance, but so far the request has been ignored.

"Banks don't want to be foreclosed from offering their traditional products, but insurance companies are afraid a broad exemption could allow banks to underwrite some traditional lines of insurance," said Samuel J. Baptista, president of the Financial Services Council, a trade group made up of banks and insurance and securities firms.

Sources also complained the Commerce Committee plan would weaken the Supreme Court's March 1996 decision prohibiting states from "significantly interfering" with banks insurance sales from small towns. The committee's proposed amendment would allow states to set tougher standards for national banks than other insurance sellers, as long as the stricter standard also applied to state banks.

"There is no way the banking industry could accept that and the Commerce Committee knows it," said one lobbyist.

Despite the discouraging start, bank lobbyists continue to keep faith that they can soften the provisions. A final version of the legislation must still must be approved by Rep. Michael Oxley, R-Ohio, chairman of House Commerce's financial institutions and hazardous materials subcommittee, before his panel brings the bill to a vote in mid-September.

"We believe committee leaders don't want a bill that is totally opposed by the banking industry, said American Bankers Association chief lobbyist Edward L. Yingling, who stressed that he has not seen the proposals."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER