NEWS ANALYSIS: Banks, Divided Over Insurance, Fail To Rally Around

Since the Depression, repeal of Glass-Steagall has been a rallying cry for the banking industry. But after House Banking Committee Chairman Jim Leach spent all of 1995 fighting to remove restrictions on bank underwriting powers, the biggest opponents of repeal are banks themselves.

Who would have figured?

Rep. Leach has said he is mystified by the banking industry's indifference. Glass-Steagall repeal is "long overdue and vitally necessary," he said.

Many bankers agree. But a lot of them want to fight that battle after the Supreme Court hands down its decision in a case pitting Barnett Banks Inc. against the Florida Insurance Commissioner. Bankers are predicting a victory that will open up a host of new insurance powers for them. Oral arguments in that case are set for Jan. 15 and a decision is expected this year.

The industry is playing a dicey game betting that a victory in Barnett will allow them to sell insurance in every state, said Robert A. Rusbuldt, lobbyist for the Independent Insurance Agents of America.

The agents will go to Congress to overturn any court decision allowing banks to escape state regulation, he said.

"A win or loss for either side doesn't make this issue go away," Mr. Rusbuldt said.

Still, bankers say the cost of Rep. Leach's Glass-Steagall bill is too high.

The legislation would impose restrictions on new bank insurance powers, including a five-year ban on the Comptroller of the Currency's ability to expand bank insurance activities.

While these restrictions were foisted upon Rep. Leach by House leaders, the Iowa Republican is determined to bring his bill to the floor.

Since November, his staff has conducted a tedious round of negotiations between a group of large banks, represented by the Bankers Roundtable, and the insurance industry, led by the Independent Insurance Agents of America.

During the holidays, Rep. Leach's frustration with bankers finally spilled over in letters to Chase Manhattan chairman Thomas Labrecque, who heads the Roundtable. The Iowa Republican blasted the latest Roundtable proposal to limit state regulation of bank insurance sales, calling it "unrealistic" and "impractical."

If bankers can't strike a deal with the insurance industry, Rep. Leach said he will try to move the bill without their support.

But it's unlikely bankers will ever reach agreement with the insurance industry. Why? The Roundtable itself is fractured between members hungry for new securities powers, those who already have them, and those who are more interested in selling insurance.

A few banks, like Norwest, Chase, and NationsBank, are willing to say yes to almost anything that will let them add to their securities businesses. But a host of others refuse to sacrifice insurance powers for securities underwriting.

Other Roundtable members have gone along with the talks but have pushed aggressively for provisions that would limit the ability of state insurance regulators to treat banks differently from agents.

Those banks, whose ranks include Barnett Banks, Banc One Corp., and KeyCorp, also oppose the moratorium on the Comptroller of the Currency. "These restrictions are a step backward when the trend is overwhelmingly toward modernization," said Robert W. Gillespie, chief executive officer of KeyCorp in Cleveland.

Even a behemoth like Citicorp is reluctant about the five-year moratorium on the Comptroller.

"We think the moratorium is a bad idea. We don't want restrictions placed on our primary regulatory agency for no good public policy reason," said Jack Morris, a Citicorp spokesman.

Citicorp could probably live without Glass-Steagall repeal if the Federal Reserve simply raised the limits now restricting underwriting growth.

Citicorp, Morgan Guaranty, Bankers Trust, and dozens of other large banks already have broad securities underwriting powers through their so- called "Section 20" subsidiaries. But units can only earn 10% of their revenue from securities not allowed to banks. Bankers hope the Fed will raise that limit to 25% or higher.

The rest of the industry is decidedly lukewarm about Rep. Leach's Glass- Steagall repeal bill.

"Glass-Steagall repeal is really a somewhat marginal issue for most community banks," according to Kenneth Guenther, executive vice president of the Independent Bankers Association of America.

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