House Panel Hands Banks A Victory On Insurance

WASHINGTON - Banks seeking insurance powers won a big victory on Thursday as the House Banking Committee turned back an effort to shut down Delaware as a base for insurance sales and underwriting.

Citicorp which recently won a court battle preserving its marketing authority under that state's law, played a lead role in the successful lobbying effort.

But the banking committee left others only a limited window of opportunity to take advantage of the Delaware law. Banking concerns would have to set up shop in Delaware before enactment of the Bush administration's banking reform bill.

Chase to Follow Citicorp

Among the more than 30 out-of-state holding companies with credit card banks and other limited-purpose subsidiaries in Delaware, only Citicorp has established a general insurance unit since state law allowed it last year. Chase Manhattan Corp. has said it plans to follow suit.

The Independent Insurance Agents of America, which had hoped the House Banking Committee would invalidate the Delaware law completely, vowed to seek relief from other congressional panels that will take up the bill. They include the House Energy and Commerce Committee and the Senate Banking Committee.

Also on Thursday, the banking panel relaxed somewhat the restrictions adopted by a banking subcommittee on insurance sales by banks from towns of fewer than 5,000 people. Acting on an amendments sponsored by Rep. Doug Bereuter, R-Neb., the panel agreed that banks in such towns could sell insurance only in adjoining areas.

The Bereuter amendment, supported by the Independent Insurance Agents, passed on a voice vote following defeat of a similar amendment that the agents opposed. The earlier amendment, which the agents complained would open the door to statewide insurance sales from small towns, failed 34 to 17.

Agents Lose Ground

The agents were unable to sustain that success when the panel turned its attention to the Delaware insurance law. Rep. Frank Annunzio, D-Ill., and Rep. Chalmers Wylie, R-Ohio, offered a measure that would limit states'ability to permit banks to market insurance nationwide. They would let banks sell insurance only in states that have expressly authorized sales by out-of-state banks.

The Annunzio-Wylie amendment grandfathers - or exempts - banks already engaged in interstate insurance sales. But their exemption was limited to states whose law were not the subject of litigation on June 1.

Delaware's law was still under challenge on that date. A federal appeals court decision dismissing the Federal Reserve Board's challenge - and upholding Citicorp's plans - did not come until nine days later.

Rep. Thomas R. Carper, Delaware's Democratic congressman, pushed through by 30 to 19 an amendment extending the grandfather date to the day on which the board reform bill is signed into law. The measure also struck the requirement that the state law not be under challenge. The overall Annunzio-Wylie provision then passed by voice vote.

As a result, banking organizations that want to use Delaware as a springboard for nationwide insurance marketing still have time to establish an office there.

The insurance issue is only one of the number of measures likely to be revisited next month by the Energy and Commerce Committee, which is expected to be an obstacle to new bank powers. Also expected to on that panel's agenda are provisions repealing the Glass-Steagall Act and the ownership limits in the Bank Holding Company Act.

Rep. Jim Slattery, D-Kan., a member of both the banking and energy and commerce panels, said he expects the latter to take up Rep. Charles Schumer's "core banking" proposal, which the banking committee rejected Wednesday evening.

Schumer Plan Defeated

The Schumer proposal, which would establish floating-interest-rate ceilings on deposits eligible for federal insurance, was defeated 29 to 23. But Mr. Schumer believes he won enough committee votes to make a credible case for his amendment on the House floor.

Mr. Schumer is expected to receive crucial support from Rep. John D. Dingell, D-Mich., chairman of the Energy and Commerce Committee, and Rep. Richard Gephardt, D-Mo., the House majority leader.

Mr. Slattery said opposition to Mr. Schumer seemed to stem from a concern that the issue had not been fully explored, rather than from concern about the substance of the proposal.

Mr. Slattery warned that the full House may look at issues differently that the banking committee. "When you get to the floor, a lot of people will be very leery about voting to repeal long-standing laws ... including Glass-Steagall," he said.

Core banking, he said, offers a way of guaranteeing that insured deposits will not be placed at risk by activities such as highly leveraged transactions or bridge loans for mergers and acquisitions.

"I hope that core banking will be the bridge to address Mr. Dingell's concerns," Mr. Slattery said.

On Thursday afternoon, the banking committee was laboring to finish work on the Bush administration bill before leaving town for the week-long Independence Day break.

A Break for Thrifts

In other action, thrifts won a break from what many regard as the stigma of their charter when the panel voted 32 to 15 to permit savings institutions to convert to national bank charters. A converting thrift would still have to meet the qualified thrift lender test, requiring 65% of assets to be in mortgages and related loans, and another 15% in consumer loans.

The amendment would clear the way for a class of national banks owned by commercial and industrial concerns, such as Ford Motor Co., to be created.

"There are very few remaining large, viable thrifts, and for the most part they all have commercial parents," said Patrick Forte, president of the Association of Financial Services Holding Companies. He said thrifts that convert would enjoy lower funding costs, and attract capital more easily.

On a voice vote, the committee rejected a Treasury Department proposal that would have forced foreign banks to form separate holding companies to take advantage of investment banking and any other new powers granted by the reform bill.

The committee adopted an amendment from Rep. Floyd Flake, D-N.Y., and Rep. Stephen Neal, D-N.C., and supported by the Federal Reserve Board, to allow foreign banks to offer proposed new services under their existing corporate structures. The panel did agree to require non-U.S. banks to maintain capital equivalent to that required of U.S. institutions.

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