WASHINGTON - National banks may soon be able to offer customers an expanded menu of insurance products, as long as the new products don't threaten safety and soundness, a top federal regulator signaled Thursday.
Julie L. Williams, chief counsel of the Office of the Comptroller of the Currency, hinted that the agency will look favorably on applications by banks to sell insurance products other than annuities. Banks are now limited to selling annuities and insurance in towns of less than 5,000 people.
When the OCC decides what products and services banks may offer, the key concern will be "the impact on the safety and soundness of the banking institution," Ms. Williams said.
"In a broad range of insurance activities - particularly those being conducted in an agency capacity - the financial risk in terms of capital impairment risk to a banking institution, we think, is quite manageable," she said in a speech to the Financial Institutions Insurance Association.
"That is why we are being supportive of banks moving into this area and staying in this area," Ms. Williams said.
Indeed, the Comptroller's office plans to urge the U.S. Court of Appeals for the Sixth Circuit to affirm its Dec. 29 decision in Owensboro National Bank v. Stephens by refusing to rehear the case en banc, Ms. Williams said.
In Owensboro, the court ruled that states cannot prevent national banks from selling insurance in towns of less than 5,000 people.
The trade group praised the OCC's stance, terming it particularly welcome in light of a recent Supreme Court decision that gave the OCC wide discretion to decide what products and services national banks may offer their customers.
"What more does he need?" to give national banks the right to sell insurance nationwide, said FIIA chairman Richard D. Starr, referring to Comptroller Eugene Ludwig.
However, Ms. Williams reminded banks that if they are to sell insurance, they must be sure their customers understand that those products are not covered by deposit insurance.
Though customer suitability standards are often associated with bank sales of mutual funds, they also apply to bank sales of insurance, she said.
Banks have "special responsibilities" because they accept deposits insured by the federal government, Ms. Williams said. They must "address in some cases the possibility that customers will be confused regarding the insured or uninsured nature of the instrument" when they sell insurance, she said.
Mr. Starr said, "The FIIA is encouraged with the determination of reasonableness that the Supreme Court made in the Valic case regarding the OCC's interpretation of what was related to banking."
"We feel that the OCC will also likely find the sale of insurance to be reasonably interpreted to be for the benefit of banking clients in their financial relationships with the insured institutions," he said.
The FIIA is the national trade group for banks, savings and loans, and credit unions. It advocates expanded insurance powers for financial institutions.
The OCC seeks "to outline a framework so that the national bank charter and the national bank system has flexibility to evolve and be responsive in terms of the products and services that banks can offer," Ms. Williams said.