A recent federal appeals court decision restricting bank insurance powers is not as damaging to the industry as first thought.

Several lawyers said a more thorough reading of American Deposit Corp. v. Schacht indicates that the court restricted its ruling solely to the retirement CD, an annuity-like product that carries deposit insurance.

"This is a quirky decision," said Julie Williams, chief counsel at the Office of the Comptroller of the Currency. "The scope of it is fairly narrow."

These sources contend the court did not broach the larger question of whether states can regulate deposit products or permanently ban bank underwriting of annuities. Rather, they said the U.S. Court of Appeals for the Seventh Circuit restricted its May 13 ruling to the retirement CD.

According to Ms. Williams, the court said banks might be able to establish separate subsidiaries to underwrite annuities under Illinois law.

She said the use of a subsidiary shouldn't matter for most institutions. Direct bank involvement is only required for the retirement CD.

Several lawyers also said the Seventh Circuit's decision effectively implemented Rep. Jim Leach's Glass-Steagall reform bill by giving states the right to define what constitutes an insurance product.

But Ms. Williams and industry lawyers said the court didn't go that far. She said the court did not decide who can regulate future bank insurance powers. This could work to the OCC's benefit because the Supreme Court has repeatedly deferred to the agency's judgment on bank insurance matters.

The lawyers also said that the appeals court did not make an end run around either of the Supreme Court's two recent bank insurance cases, as initially thought.

The appeals court relied on the McCarran-Ferguson Act, which gives states primary regulatory authority over all insurance activities except those explicitly authorized by federal law.

McCarran-Ferguson was the central issue in the Supreme Court's recent Barnett decision, which prevented states from banning bank insurance sales in small towns.

Ms. Williams said Barnett relied on Section 92 of the National Bank Act, which specifically mentions insurance. American Deposit relied on a different section that does not refer to insurance powers, she said. The court, highlighting this difference, said states could regulate fixed-rate annuity sales.

The court also differentiated its ruling from the Supreme Court's decision last year in Valic. It said Valic gave national banks the right to broker - not underwrite - annuities, Ms. Williams said.

Other banking lawyers backed up Ms. Williams' reassessment. They also added several new reasons to question the ruling's significance.

Richard Whiting, general counsel at the Bankers Roundtable, noted that the ruling contained a strong dissent, limiting its influence on other courts that may consider the issue.

Charles M. Horn, a partner at the Washington law firm of Mayer, Brown & Platt, said the ruling doesn't affect the vast majority of banks that don't underwrite insurance products.

"This is not something that is absolutely horrible," he said. "Its applicability and scope are quite limited."

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