The Office of the Comptroller of the Currency has broadened national banks' authority to sell crop insurance.

In a Dec. 29 letter to an Iowa Bankers Association subsidiary, the agency said national banks are not restricted to selling crop insurance from agencies based in small towns.

The OCC ruling put national banks on an equal footing with Iowa- chartered banks, which have been able to base their crop insurance sales operations anywhere in the state, said Iowa Bankers Association president John K. Sorenson.

"National banks should have the same ability to sell this product as state banks do," said Mr. Sorenson, who is also president of Iowa Bankers Insurance and Services Inc., Des Moines, a unit of the trade group that supplies insurance services to member institutions.

Before the ruling, national banks could only sell crop insurance from towns with populations of less than 5,000. But the Comptroller's Office ruled that selling crop insurance is not subject to this restriction because it is incidental to the business of banking.

The agency said crop insurance is a logical outgrowth of the lender- borrower relationship because it:

Insures sources of repayment important to both the bank and the borrower.

Promotes a bank's lending business by making available a credit-related product sought by borrowers.

Enables an institution to avoid losses from activities that are part of, or necessary to, its banking business.

"Because of its relationship to lending and the role crop insurance plays in helping the customer repay a loan, it qualifies as being incidental, necessary, and convenient to the lending function," OCC Chief Counsel Julie L. Williams said in an interview last week.

Crop insurance also is similar to other credit-related insurance products that the OCC and the courts have determined to be directly related to making loans, the agency argued. These products include credit life insurance and certain types of automobile insurance.

Observers said the ruling will enhance national banks' ability to compete with other agricultural lenders. "This is clearly a significant ruling," said David W. Roderer, a lawyer in the Washington office of Goodwin, Procter & Hoar. "It moves an activity that has traditionally been constrained because it was treated as general insurance over to the business of banking."

Increasing the availability of crop insurance is especially crucial in the wake of a 1996 law that will phase out federal crop price guarantees, Ms. Williams said.

"The degree of risk to banks from loans to agricultural producers has increased," she said in the letter. "Accordingly, both farmers and lenders have a heightened need to identify appropriate risk management approaches, including insurance coverage."

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