New York has become an early battleground in the insurance industry's state-by-state effort to roll back banks' gains from the U.S. Supreme Court's Barnett decision.

Two bills before the New York Legislature would put state-chartered banks on equal footing with national banks by allowing them to sell insurance from small towns. But the insurance trade groups are trying to amend the bills to include consumer protection rules that banks claim would hamstring their operations.

The struggle has grabbed the attention of bankers nationwide, because similar insurance industry initiatives are expected in other states.

What happens in New York also will be watched in Washington, where House Banking Committee Chairman Jim Leach has doggedly tried to resolve disputes between the two industries. The Iowa Republican needs support from both the insurance and banking industries to move his Glass-Steagall reform bill.

"I think this is directly relevant to the legislation being discussed in Washington," said Michael P. Smith, president of the New York Bankers Association.

The New York legislation is intended to give state-chartered banks equal powers in the wake of the Supreme Court's March 26 decision to allow national banks to sell insurance from towns with fewer than 5,000 residents. State lawmakers have asked bank and insurance industry groups to propose amendments to the bills, which are pending in both the Senate and the Assembly.

Lawmakers there are hoping to complete a final draft of the legislation by June 14.

Bankers are howling about several of the insurance industry's proposals, including:

*Limiting bank insurance sales to the geographic boundaries of small towns.

*Requiring "physical separation" of insurance advertising from office areas where loans are made.

*Forcing banks to make names and logos of their insurance agency affiliates "sufficiently distinct" from their own to "prevent public confusion."

*Prohibiting tellers or loan officers from making insurance referrals.

"The insurance industry wants to make it as difficult as possible for banks to employ insurance in their package of products," said John Pritchard, executive director of the Independent Bankers Association of New York.

Insurance industry officials, however, argued that banks should face additional restrictions.

The courts haven't provided sufficient protection for consumers, said Benjamin Brewster, director of government affairs for the New York Association of Life Underwriters. "I don't think our proposals are unreasonable, although banks might think they are, in light of today's legal environment," he said.

Critics of Rep. Leach's bill say the New York struggle illustrates the kind of problems that would arise if the Glass-Steagall legislation were passed. The bill, they contend, would weaken court rulings currently protecting bank insurance sales.

Charles E. Rice, chairman of Barnett Banks Inc. and a staunch opponent of Rep. Leach's bill, said the New York insurance proposals are "a compelling reason" for national banks to oppose Rep. Leach's bill.

Rep. Leach has steadfastly disagreed with his critics, arguing that his bill would prevent states from "significantly interfering" with bank insurance sales, even though they could regulate the "manner" in which banks sell insurance, including licensing, consumer protection, and disclosure rules.

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