WASHINGTON - Bank of America has become the first in what industry observers expect will be a wave of banks seeking to take advantage of the Gramm-Leach-Bliley Act of 1999 by relocating their insurance operations to their headquarters cities.

In a Dec. 7 letter released Tuesday by the Office of the Comptroller of the Currency, Bank of America requested permission to convert its insurance subsidiary, Banc of America Insurance Services Inc., from an operating subsidiary to a financial subsidiary.

The effect of the proposed conversion would be to liberate Banc of America Insurance Services from the requirement that it be located in a town with 5,000 or fewer people. The bank told the OCC that if its request is approved it will move the $10.7 million-asset company from Mount Airy, Md., to its headquarters in Charlotte, N.C.

Bank of America did not respond to repeated calls for comment on the application, but industry observers suggested that efficiency and cost savings drove the move.

"The new law permits you to sell insurance without having to be located in a town of 5,000, so I suspect that there will be a lot of institutions that will move in that direction," said James C. Sivon, a banking lawyer who is secretary of the Support Group for Modern National Banking.

But whether other banks with insurance operations will follow Bank of America's lead and opt for a financial subsidiary or will convert instead to a holding company affiliate remains an open question.

As a financial subsidiary, Banc of America Insurance Services would continue to be regulated by the Comptroller's Office, which also regulates the bank. However, the financial reform law bars bank subsidiaries from underwriting insurance.

Had Bank of America opted instead to move its insurance operation to a holding company affiliate, it would be regulated by the Federal Reserve Board and could underwrite as well as sell insurance.

The bank's decision puzzled some observers.

James H. Overholt, senior consultant at Milliman & Robertson, said he expects Bank of America will eventually move its insurance operation under the holding company so that it will have the underwriting option. "This may be a wait-and-see step," he said. "A lot of the regulations to implement the new powers haven't been written yet."

Others argued that Bank of America's move may simply have been the one that made sense from a management perspective. "My assumption would be that if a bank has its insurance operation housed in a bank subsidiary, it would be easier to keep it in that [reporting] chain," Mr. Sivon said.

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