While Congress continues to grapple with the question, state legislatures are forging ahead with new laws governing bank insurance sales.

Since March 1996, when the Supreme Court said national banks may sell insurance from small towns, 19 states have enacted or updated their laws governing how banks may enter the business.

"While tremendous attention has been given to legislation in Washington, a lot more cooperation between the banks and insurance trade associations is being shown in the states," said Richard D. Starr, chairman of the Financial Institutions Insurance Association. "Rather than being adversarial, both sides are eyeing this realistically and asking, 'How do we work together?'"

Although reactions to the new laws are mixed, bankers are satisfied the logjam has been broken.

"Some states have acted freely, some begrudgingly," said Mathew H. Street, associate general counsel of the American Bankers Association. "But states that block bank insurance sales are really in a minority now. This is a huge, huge change."

It is easier for state officials to referee industry disputes, according to Daniel E. Lyford, a Concord, N.H., attorney who negotiated with legislators on behalf of the New Hampshire Bankers Association.

"We were able to get all of the interested parties at one table," he said. "On a national level you have to multiply the number of players."

The measures enacted take many different tacks. For example, Pennsylvania and Illinois allow banks to sell insurance statewide with few restrictions. In Texas, however, insurance sales offices may only be in towns of 5,000 or fewer residents, and banks must build strong firewalls and follow tough consumer protection requirements.

Pennsylvania's new law, which allowed state banks to sell insurance for the first time, is getting favorable reviews both locally and from national trade associations.

In fact, the law gives national banks operating within Pennsylvania's borders broader authority than federal rules. For instance, they face no restrictions on where they may base their insurance operations, while national banks generally must headquarter their sales offices in small towns. Also, all bank loan officers may sell insurance.

Bill Hayes, president of Kishacoquillas Valley National Bank, said the state law made it easier to move into the insurance business. "It is a fair law and without it we would be operating in the dark," he said.

Kishacoquillas Valley National is expected to close on the purchase of a small insurance agency next month, becoming the first Pennsylvania institution to enter the business.

In Illinois, state banks also may sell insurance statewide, and loan officers are allowed to handle insurance transactions. Also, institutions with less than $100 million of assets are exempt from a requirement to physically separate credit and insurance activities. Personal data, except for health-related information, may be used for cross-marketing. "We think these are very workable rules for banks," said Scott Clarke, Illinois assistant commissioner of banks.

In Texas, however, the new law is much stricter. In the Lone Star State, banks must not only base their insurance operations in small towns, but are forbidden from even setting up insurance sales branches in towns with more than 5,000 residents.

"This is very onerous," said Michael C. Amici, manager of insurance operations at International Bank of Commerce in Laredo, which has 65 branches in 25 cities. "I can't put an agent in most of my branches."

Bankers also objected to provisions prohibiting loan officers at institutions with more than $40 million of assets from selling insurance and requiring that bank and insurance records be kept separate. "We believe the measures will be preempted by the Comptroller's Office," said Robert E. Harris, president of the Texas Bankers Association.

Mr. Harris said he is waiting for the Office of the Comptroller of the Currency to rule on a challenge to Rhode Island's restrictive 1996 law before asking the federal regulator to step in.

Restrictions passed in other in other states also have raised concerns, according to Kathleen Collins, Washington counsel for the Financial Institutions Insurance Association.

For instance, in New Mexico, banks are forbidden from offering borrowers a discount on insurance and may not solicit a loan customer until the credit has been approved.

In New Hampshire, a prohibition on the "bundling" of products makes it unclear whether loan customers may receive discounts on insurance.

More states are expected to enact laws soon. For example, New Jersey lawmakers are working on legislation now that would require lenders to wait 30 days after approving a loan before selling insurance to the customer. The bill also would require lending and insurance sales to be done in physically separate areas of a bank branch. The legislation is not expected to come to a final vote until December.

In Congress, House members are negotiating a sweeping financial reform bill that would allow banks to affiliate with insurance companies, as well as securities and nonfinancial firms. Disputes over bank insurance sales provision are one of the major sticking points.

The American Bankers Association opposes legislation passed by the House Banking Committee on June 20 in part because state regulators could appeal bank insurance powers granted by the Comptroller's Office to a newly created National Council on Financial Services.

The House Commerce Committee is expected to vote on changes to the legislation next month and could ban outright the comptroller's authority to determine new powers for national banks.

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