Fed up with Congress' inability to enact financial reform legislation, U.S. banks are finding new ways to skirt the law to grow bigger.

Both the Citicorp-Travelers Group and NationsBank Corp.-BankAmerica Corp. deals delve into areas of the law not yet tested by the industry.

"For competitive reasons, banking companies have to meet the expectations and demands of their customers," said Karen Shaw Petrou, president of the consulting firm ISD/Shaw Inc. "That forces them to the outer edges of U.S. law."

"These are definitely unchartered waters," said Bert Ely, president of the consulting firm Ely & Co. "But it is the way things are moving. Technology is just blowing holes through the ways we used to do things."

The Citicorp-Travelers merger is the boldest deal of them all. The Bank Holding Company Act bars a banking company from owning an insurance underwriter. To circumvent this restriction, the deal is structured so Travelers will acquire Citicorp. The companies will then use a two-year grace period in the law-which was intended to give companies time to divest illegal operations without having to suffer a loss-to lobby Congress to change the law.

"We do not seek and do not require any change in the law in order to consummate this merger," Charles Prince, Travelers' executive vice president and general counsel, said recently at a Federal Reserve hearing.

During the two-year divestiture period-which the Fed may extend by up to three years-the companies will cross-market banking, insurance, and securities products.

"Banks all over the United States cross market other financial services products, including insurance products today," Mr. Prince told the Fed. "What is different here is that instead of cross marketing the financial services products of unaffiliated providers, we will combine the ownership of multiple companies under one umbrella."

If the Fed approves the merger, then Mr. Ely said he expects several more banks and insurers to link up. "We are going to see more deals like this," he said. "This is the way the world is evolving."

The NationsBank-BankAmerica deal is less radical, but still unique. The combined bank will control 8.1% of all domestic deposits, which gives the bank little wiggle room for future deals because Congress imposed a 10% cap on the percent of U.S. deposits any one bank could hold.

The new BankAmerica would be the first institution to confront the deposit cap, which was included in the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act. The new bank would be able to acquire only one more regional bank before it would be legally barred from acquiring other banks, although it could grow without acquisitions beyond the 10% deposit cap.

Mr. Ely said the new BankAmerica would not be the only banking company bumping up against the cap. "I can easily see at least two other large, substantial coast-to-coast companies coming together to push the 10% limit," he said.

Even the BancOne Corp.-First Chicago NBD Corp. deal raises some novel issues. The combined companies would control 42% of local deposits in Indianapolis before divestitures and have banking relationships with half of the city's midsize companies. Even with divestitures, the bank will dominate the city and push the limits of antitrust law.

At least some of these deals will be challenged in court. The Independent Bankers Association of America and several community activists have vowed to sue to block the Citicorp-Travelers deal, arguing that the banks are exploiting the two-year divestiture period in a manner Congress did not intend. Antitrust issues in the NationsBank-BankAmerica and BancOne-First Chicago deals also may be subject to challenge.

"These deals are crossing the line," said Karen M. Thomas, the IBAA's director of regulatory affairs. "It is a real big problem."

Ms. Thomas said the IBAA was especially concerned about the devastating effect the deals could have on competition.

"While each merger may be legal, the cumulative effect on competition may not be legal or good for the users of banking services," she said.

She also warned that these megadeals could spark a backlash, with the public forcing Congress to crack down.

"We may see the return of the trust busters," Ms. Thomas said. "When that happens is anyone's guess. But there are parallels to the end of the last century with the robber barons and the trust busters."

Ms. Petrou, however, said she expects more banks to push the envelope. "The laws are anachronistic," she said. "We will see more deals like these."

Also, she said U.S. banks need to offer one-stop shopping to major corporate customers, who may turn to foreign banks if U.S. institutions are not allowed to meet their needs.

"The boundaries between banking, insurance, and securities exist more and more just in the United States," she said. "They are not in any other major financial market."

The only thing that could stop the market from evolving is Congress, which could bar the regulators from giving banks new powers or allowing them to consummate mergers.

"I can't see any substantive shutdown legislation because that is going in such an opposite direction from trends in the market," she said. "That is not how Congress works unless there is a threat to the public, and none of these deals raise that."

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