Securities and insurance firms, thanks to a sympathetic Congress, have been largely successful in keeping bankers off their turf while taking more and more business away from them.

Unshackled by the heavy regulatory and legal burdens imposed on banks, securities and insurance firms have been able to develop new financial products and services in tune with customers' changing needs.

Although banks' share of the financial services market has been in a steady decline over the past several years, there is still hope: The so- called Retirement CD proves that there are still opportunities to wriggle out of the regulatory straitjacket and develop new products.

However, innovation is not for the timid, particularly if it causes another's ox to be gored. And the Retirement CD, a bank deposit that also qualifies as an annuity under the Internal Revenue Code, gores the insurance industry's prized ox - the annuity - and it has unleashed the industry's fury.

To make matters worse for insurance companies, the Supreme Court ruled on Jan. 18 that annuities are not insurance products. If annuities are considered as investment products, none of the federal banking law restrictions on bank insurance activities are invoked.

By all accounts, the insurance industry is apoplectic about the prospect of having to compete with banks in a $130 billion-a-year business. But that hasn't stopped banks.

A year ago, Blackfeet National Bank of Browning, Mont., became the first bank to offer the Retirement CD.

Doubting Thomases, which included some well-known bank attorneys, said that banking regulators were not likely to allow banks to offer the product and that the Federal Deposit Insurance Corp. would probably not insure the annuity deposit.

They were proved wrong on both counts. On May 12, 1994, the general counsel for the Office of the Comptroller of the Currency informed Blackfeet National Bank that the agency did not object to the bank's plans to market the Retirement CD, provided it adhered to certain guidelines. That day, the FDIC also issued an advisory opinion in which it confirmed that the Retirement CD qualifies for deposit insurance.

Insurance industry spokesmen have publicly proclaimed that they "will play the hardest of hardball" in their efforts to preclude banks from offering the Retirement CD. So far their actions have been true to their words.

Insurance companies apparently see nothing wrong with poaching in banks' territory, but cry foul when the shoe is on the other foot.

As more banks begin to offer the product, the insurance industry is stepping up its defensive efforts, aided and abetted in some instances by sympathetic state insurance commissioners. Since it is unlikely that insurers will be able to deliver a knockout blow through the courts, they are focusing their attention on Capitol Hill.

They are looking to their old ally, Sen. Christopher Dodd, to lead the charge against the Retirement CD in the Senate and counting on the banking industry's longtime nemesis, Rep. John Dingell, to do the same in the House.

This time, though, all the public policy arguments appear to be on the banks' side.

To begin with, bank deposit annuities are subject to the full disclosure requirements of the Truth-in-Savings Act, while annuities issued by insurance companies are not.

Moreover, bank annuity deposits are insured up to $100,000, while insurance company annuitants are merely unsecured creditors of the issuer.

Clearly the Retirement CD serves the consumer by providing a safe haven for hard-earned retirement savings. The nation also benefits in that the product encourages savings.

By helping to stem the tide of disintermediation, the ability of banks to serve their local communities is enhanced and the effectiveness of the Federal Reserve's monetary policy is increased.

Ever since interest rate deregulation, banks have not been able to attract long-term deposits. Retirement CD deposits address this problem and will enable banks to offer a broader mix of borrowing options.

Insurance industry lobbyists and their congressional allies warn of the risk to the Bank Insurance Fund if banks are allowed to offer the product, but this argument has a hollow ring. Because of the various assumptions built into the annuity mortality tables, the risk, if any, is minimal, as the banking regulators have recognized.

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