WASHINGTON - The Office of the Comptroller of the Currency office wanted feedback on whether it should delineate which state rules apply to national banks and which don't.

It got it.

In comment letters filed with the agency, insurance companies blasted the plan, banks said they liked the idea, and state bank regulators argued that the subject deserved better than being lumped in with scores of other issues in an 85-page proposed regulation.

The topic of state regulations is a hot one, with banks now battling states over the right to sell insurance. The National Bank Act says bank branches in communities of less than 5,000 people can, but laws in 16 states say they can't.

Barnett Banks Inc. of Florida recently asked the Supreme Court to resolve the insurance dispute.

The Comptroller's foray into this mine field came in the proposed Part 7 rule change published in March. In it, the Comptroller's office states that it "is considering whether it would advisable" to propose "a specific interpretative ruling addressing the applicability of state licensing requirements for national banks."

The answer from the Ohio National Life Insurance Co., for one, was a clear no.

"If the intent and purpose of your proposed rule is to allow banks to sell annuities or other insurance products free and clear of regulation by state insurance departments, then the proposed rule, if adopted, would be contrary to the McCarran-Ferguson Act, would have serious anticompetitive effects and would be immediately and persistently challenged by insurance companies and state insurance regulators," wrote David B. O'Malley, the company's chairman, president, and chief executive officer.

Washington David Roderer, a partner at the law firm of Winston & Strawn who represents several trade associations on insurance issues, said he does not think exempting national banks from all state regulation is the agency's intent.

He said he expects the Comptroller's office eventually to come out with a ruling or regulation that says state insurance licensing requirements are valid as long as they don't discriminate against national banks.

When and how the Comptroller's office will do this is a matter of speculation and debate. In its comment letter, the Conference of State Bank Supervisors urged the agency to back off and deal with the matter as a separate regulation, not as a piece of Part 7.

"In our opinion, these weighty matters will not receive the necessary attention because they are buried within a much larger proposal," wrote Robert A. Richard, the group's vice president and director of regulatory services.

There's also the question of whether any move by the Comptroller's office would affect the litigation pending before the Supreme Court.

"Technically it wouldn't, but in practicality, yes," Roderer said. "But I assume the Comptroller will not move precipitously in this area."

"You have to make a judgment about timing and whether it makes sense to go ahead or not," said Julie Williams, chief counsel in the Comptroller's office. At this point, she added, "We're not even close to a point of knowing how we're going to respond to the comments we've gotten for Part 7."

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