Mr. Fasold is president of American Deposit Corp. of Pine, Colo., which developed the "retirement CD" sold by banks in competition with the insurance industry's annuities. Recently, the Internal Revenue Service proposed a regulation that would disallow tax-deferred build-up in retirement CDs. If the rule is adopted, it could effectively destroy Mr. Fasold's invention.

In a article written for the American Banker, the outspoken Mr. Fasold challenges the banking industry to do more to protect the retirement CD.

Each attempt to invade the ordained turf of another industry invariably causes a high-pitched howl of anger. American Deposit's product, the "retirement CD," has caused such a howl.

Why? Is it the competition that tax-advantaged, federally insured product poses to the $160 billion annuities business? Not really.

Direct competition is not the real problem. The real problem lies in the fact that when consumers comparison shop, they might discover the two dark secrets of the insurance industry.

When a customer is given a choice between an insurance company produced annuity and a retirement CD, he or she will likely ask, "What's the difference?"

Federal Deposit Insurance Corp. insurance will be the answer. The retirement CD has it.

The next logical question is what kind of protection do I get if the insurance company fails that sold me the insurance-produced annuity? The answer is grim.

The state guarantee funds provide protection for customers when a life insurer fails. There are two problems with this protection: a) the state guarantee funds have no funds in them, and b) as a holder of an annuity, it is unclear if you get any coverage at all.

In nearly every state, it is illegal to disclose the terms and benefits of state guarantee funds. When insurance customers inquire, their questions go unanswered.

My firsthand knowledge of Mutual Benefit Life illustrates the problem. Of the $5 billion of annuities caught in this spectacular failure, roughly one-third were "covered" by some protection of state guarantee funds, one- third were not covered, and one-third no one could tell if they were covered or not.

"Covered" annuity holders had no access to funds for over nine years without a severe penalty. Once access was gained, it was at greatly reduced returns. The annuitants contributed their part to pay for the rehabilitation of Mutual Benefit.

The insurance industry does not want these facts to come to light. Not much publicity has been given to the 1994 report of the Committee on Energy and Commerce's report, Wishful Thinking, A World View of Insurance Solvency Regulation, which outlined the weaknesses of the regulatory and guarantee fund system.

The dark little secret, kept so well by statutes, risks becoming an issue if the retirement CD proliferates.

The insurance industry has another problem with the retirement CD and other intrusions on their turf - the so-called "social investments." In 1993, the entire life insurance industry only lent $1.8 billion in social investments. Over 65% of the life insurance companies provided no social investments. By way of contrast , Bank of America lent $5.9 billion in one year, 1994, under the Community Reinvestment Act mandate.

The insurance industry does not want the public asking what social good is coming with the $160 billion annually deposited in insurance-produced annuities.

What do these facts have to do with the current legislative debate? The retirement CD is merely a chip in a poker game in which its developers are not allowed to play. We realize this.

But as your banking lobbyists are wheeling and dealing in Washington, bank core powers may be given away.

One compromise on the table is to give state insurance commissioners the power to define what products are "insurance." Insurance commissioners jealously protect the turf of their constituents. Give them the power to define it and virtually all new ideas in banking will surely be defined as insurance.

The insurance industry has made steady inroads into banking for years, taking tax-deferred deposits - individual annuities - and mutual funds without any of the pain of FDIC insurance premiums or community reinvestment. Banks have made no inroads into the life insurance domain of tax-advantaged savings.

Now banks' Washington lobbyists may throw away their one meaningful inroad into the insurance domain - tax-deferred savings. Why? Because it looks like the insurance companies and agents may cooperate to "tee up the football" for a game of unbridled competition according to their rules, with their commissioners as the referees.

If the banking industry loses this round with the insurance industry and surrenders the retirement CD, as well as other deposit-taking powers, it will just be another milestone on the road to the ultimate demise of the banking system as a player in the financial services market in the United States.

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