Efforts to expand bank insurance powers in Illinois have been grounded at least until next year by disagreements between the state's bank trade groups.

The Community Bankers Association of Illinois this month announced a compromise with insurance industry groups on legislation to allow Illinois banks to sell life and property-casualty insurance, regardless of charter or community size.

However, the Illinois Bankers Association maintains that parts of the compromise are too restrictive on banks - and it refuses to support it.

Currently, only national banks in towns of 5,000 or fewer people in Illinois can sell insurance. About 27 states allow state-chartered banks to sell insurance, but Illinois does not.

So, facing a divided banking industry, the Illinois Legislature last week extended the deadline for final action on the proposal to Jan. 7, then adjourned.

Still, although no final action was taken, "that issue is now on the front burner, rather than floundering, as it has, for the past 10 years," said David E. Manning, lobbyist for the Community Bankers Association.

Both bank groups said they hope to meet to discuss the issue this year.

"It has been our highest priority to get insurance powers for banks," said William J. Hocter, the Illinois Bankers Association's executive vice president. "We still intend to try to do that."

The Community Bankers Association announced on May 13 an agreement with the Professional Independent Insurance Agents of Illinois and the Illinois Life Underwriters Association to allow bank insurance sales with certain restrictions, including the use of separate insurance subsidiaries and staffs.

But the Illinois Bankers Association said that it, along with the Illinois League of Financial Institutions and the Illinois Credit Union System, opposed many of the provisions of the compromise.

In particular, the trade group argued that the legislation gave too much power over banks to state insurance regulators and complained that it would be hard for small banks to maintain separate insurance entities and staff.

But Mr. Manning of the Community Bankers Association accused the Illinois Bankers Association's big-bank members of driving the trade group's stance, saying many already sell insurance through small-town locations, and fear changes and competition.

Ironically, Community Bankers Association president James R. Shafer supports the compromise, even though his First National Bank in Tremont already has insurance powers. In fact, the legislation would require the $32 million-asset bank to change its ways, including creating a separate insurance subsidiary and preventing loan officers from selling insurance.

Nonetheless, Mr. Shafer said all the state's banks should be able to "offer the consumer a financial protection product at the source: the community bank."

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