Listen, Congress, Even the GAO Likes Insurance Powers
If you're a really astute observer of the banking scene, you may be able to guess the source of the following quotes.
"Bank sales of insurance underwritten by an unaffiliated insurance company present no risk to bank safety and soundness."
You might guess a big banker said that - maybe John Reed of Citicorp. Or Bill Seidman, the probank former chairman of the Federal Deposit Insurance Corp.
Guess again.
Who Said That?
"Banks could possibly reduce consumers' insurance costs if they could lower the costs of selling policies through joint marketing of banking and insurance products. The increased convenience would also save consumers time and effort in purchasing insurance products."
Could this have been Joe Belew of the Consumer Bankers Association? No. How about the leader of a big-time consumer group out to bash the insurance industry while it's down? Not so.
Here is one last chance, another quote from the same source:
"Expanded bank sales of insurance would create a more level playing field among banks and other depository institutions that already sell insurance."
Might this be that supersalesman for the banking industry Ed Yingling, the American Bankers Association's top lobbyist on Capitol Hill. Wrong again - and not even close.
The source of all the quotes is none other than the General Accounting Office.
You may be shocked, but the GAO is really a very helpful adjunct to the Congress. It cranks our reports at an amazing pace.
One would expect "Bank Powers: Issues Related to Banks Selling Insurance," the GAO's report to the chairman of the House Small Business Committee, to be whole-heartedly embraced by the House. One would further expect the conclusions to be quoted all over the capital.
Unfortunately for the nation's banks and the public, the GAO's conclusions were unlikely from the start to be incorporated in the 1991 bank reform legislation.
A One-Way Barrier
A recent American Bankers Association publication, aptly titled "Myths," graphically indicated the legally authorized inroads into traditional banking fields made by leading nonbank financial firms and commercial firms.
The ABA noted the inroads of such major players as Ford, General Motors, General Electric, and Sears into consumer loans, mortgage banking, commercial banking, ownership of a FDIC-insured depository institutions, credit card services - and, of course, insurance.
Meanwhile banks, largely excluded from the safe and consumer-friendly waters of insurance sales, have been forced or at least nudged into such hazardous waters as commercial real estate lending. (There swim the worst sharks seen since the oil-soaked specimens that haunted the Southwest in the early and mid-1980s.)
A Competitive Need
I hope the words of the GAO will ultimately cause the Congress to take a serious look at insurance sales as one of many steps that will effectively aid the recovery of the banking industry.
U.S. banks compete with foreign banks that dwarf even Citicorp in assets - banks that in Europe are allowed to affiliate with insurance giants, and that in Japan are major components of the integration of commerce and finance known as keiretsu.
If our banks are to compete fully, the archaic restrictions on their entry into risk-free related areas must be loosened.
Not for the Big Players Only
Opponents of new bank powers often argue that such efforts are only for big banks.
This argument may be valid in stock and bond underwriting and some other specialized areas that require sophisticated and very highly compensated staffs.
I am convinced, though, that community banks - often revered by customers they have served faithfully and competently for many years - would jump at the chance to offer a risk-free, consumer-friendly product such as insurance.
Arguments to the contrary are selfishly motivated - or naive, in that they fail to recognize the ingenuity of community bankers.
The GAO says bank involvement in selling insurance would be risk-free, convenient for the consumer, and possibly cheaper. It's time Congress listened.
Mr. DeVito is a consultant based in Franklin, Mass. Until recently he was executive director of the Rhode Island Bankers Association.
