When the House leadership proposed legislation barring regulators from approving new insurance powers for national banks, it didn't sound like that bad a deal.

After all, the leadership's amendment was going to be wrapped into the regulatory relief bill, and that legislative package had so many gifts for bankers that the industry could have absorbed a little pain on insurance and still been better off.

Consider: The Community Reinvestment Act was to be virtually demolished. Lenders were to be protected from a court decision that made it possible for borrowers to repudiate mortgages. A number of laws, from Truth-in- Lending to the Real Estate Settlement Procedures Act, would be made easier to live with, and the power of the Department of Justice to bring fair- lending lawsuits would be crimped.

Balanced against that, House Speaker Newt Gingrich and banking committee Chairman Jim Leach proposed a moratorium on powers that banks had not even thought to ask for yet - the innovations of the next century.

"It was objectionable but not horribly onerous," said a bank lobbyist of Rep. Gingrich's proposed moratorium.

So why did the industry then proceed to attack the moratorium with such rage - threatening to oppose the entire regulatory relief package if the insurance amendment were made part of it?

Because things are not always what they appear. The devil, as they say, is in the details, and the seemingly straightforward leadership proposal came wrapped in seven pages of details. Bankers' anxiety grew page by page.

Buried inside this package was a provision that bankers and their lawyers said was particularly onerous: State insurance regulators would be given extraordinary power to regulate national banks.

"National bank powers have never been circumscribed by the states before," said bank lawyer David Roderer, a partner at Winston & Strawn.

"If it were just a freeze on the OCC, that would be different," Mr. Roderer said. "But this package says that a state can decide what is insurance and restrict it."

With such broad power, a hostile state regulator could declare almost anything to be insurance, from letters of credit to derivatives.

It got worse, said Philip Corwin, a lobbyist for the American Bankers Association. "It reverses Valic," a case in which the Supreme Court upheld the right of banks to offer annuities.

And it protected the nation's insurance agents on pending litigation involving Florida's Barnett Banks Inc. In that case, Florida had invoked the state's "anti-affiliations" law to block the bank company from selling insurance. Banks think they can win that case and want the entire industry to enjoy the benefits of the victory.

The House leadership's amendment, however, specified that only banks engaged in litigation - Barnett and three others with similar cases - would be covered. Barnett's lawyers feared that the amendment would narrow the case's import to the point that the high court would decline even to hear it.

Supporters of the moratorium belittled the industry's arguments, saying bankers were basing their arguments on fear of a mythical "rogue state regulator."

Moreover, one banking panel aide warned that the industry was gambling that it would win the Barnett case. In effect, he said, the industry could be gambling away the opportunity of the century on regulatory reform and end up losing in court, too.

Bank lobbyists think their efforts have had some effect; the insurance language was made more tolerable, they say. Some big banks were also heartened by a separate amendment that permits them to affiliate with insurance companies.

Mr. Roderer, for one, disagrees. "It's an abysmal piece of legislation," he said. "The industry's franchise is in danger."

This bill, though, is a long way from being finished. And as it winds its way through the tortuous legislative process, the industry would do well to keep a close eye on the details.

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