WASHINGTON - Rep. John Dingell is urging regulators to withdraw a new rule that permits some state banks to continue underwriting insurance outside their home states.

The powerful Michigan Democrat said the Federal Deposit Insurance Corp.'s rules, which took effect Wednesday, are much more lenient than Congress intended when it passed last year's banking law.

And in another challenge to the FDIC's rules, the American Council of Life Insurance said it plans to sue the agency to get the regulations reversed.

Gary Hughes, the group's chief counsel for securities and banking, said the suit would be filed within days.

State Banks |Grandfathered'

Congress last year passed a law essentially barring state-chartered banks from activities that national banks are prohibited from, including underwriting insurance. However, the law permitted state banks that already were underwriting insurance to continue the practice.

Under the FDIC's interpretation of the rules, state banks that were already underwriting insurance outside their home state on Nov. 21, 1991, can continue doing so. But Mr. Dingell and the insurance industry argue that Congress intended to permit state banks to continue underwriting insurance only in their home states.

The FDIC's rules benefit Citicorp; Washington Mutual Savings Bank, Seattle, Chase Manhattan Corp.; and Bankers Trust New York Corp., all of which have insurance subsidiaries grandfathered under the law.

Citicorp in Numerous Markets

In its comment letter on the FDIC proposal, Citicorp said its insurance unit is underwriting policies in at least 35 states.

"We believe that the FDIC's analysis is correct and that Mr. Dingell's is wrong," a Citicorp official said Thursday.

Mr. Dingell, who is chairman of the House Energy and Commerce Committee, charges that the agency's final rules, adopted on Nov. 9, are dramatically different from the proposal it put out for comment in July.

"One can only wonder what motivated the FDIC, just one week after the [presidential] election, to so completely reverse its earlier interpretation," Mr. Dingell wrote in a letter to the agency dated Dec. 4.

Acting FDIC chairman Andrew C. Hove responded to Mr. Dingell's letter Wednesday, saving his agency would not stop implementation of the rules.

However, Mr. Hove told Mr. Dingell, "The FDIC board of directors will consider your request to reopen the rulemaking as soon as reasonably possible."

Persuasive Comments

Mr. Hove attached to his letter a staff-written response to Mr. Dingell's individual concerns. In that document, the FDIC argues that comments on its proposal convinced the agency that its original interpretation of the law was "flawed."

The FDIC pointed to an amendment by Sen. Don Riegle, D-Mich., and Sen. Jake Garn, R-Utah, that changed the words "in that state" to "in a state."

That change to the law, the FDIC said, was the reason for widening the grandfather privileges beyond the single state where a bank is conducting insurance activities.

Mr. Dingell also said the FDIC's decision to exclude annuities from the definition of insurance was "outrageous." This decision means annuities underwriting and sales are not limited by the regulation.

The FDIC staff analysis, relying on past Supreme Court cases. said annuities are investment vehicles, not insurance contracts.

The question is in the courts as the insurance industry is challenging a 1990 decision by the Office of the Comptroller of the Currency to let NationsBank sell fixed- and variable-rate annuities.

The OCC won, but the case was appealed to the U.S. Court of Appeals for the Fifth Circuit.

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