The Office of the Comptroller of the Currency has quietly opened the door for national banks to exercise powers now available only to state-chartered institutions.
In permitting Magna Bank of Missouri to switch to a national charter, the Comptroller's Office let it keep its 33 insurance agency offices - including several in towns of more than 5,000 people. The decision was included in a package of interpretations and actions that the agency released recently.
National banks had previously been allowed to operate insurance agencies only in smaller towns.
The OCC had previously let converted institutions keep powers not available to national banks, but only temporarily, said David Roderer, a partner at Winston & Strawn. Granting such permission without a time limit "has never been done before," he said.
Mr. Roderer said he doubts the regulator will permit national banks to use the Magna case immediately as a means of expanding their insurance activities. But "it is an opening" that could be expanded in the future, he added.
The agencies have used administrative orders before to open the door to new powers. The Barnett case, which is now pending before the U.S. Supreme Court, started when the Jacksonville, Fla., institution got permission to buy an insurance agency. Also, the industry's 1995 Supreme Court victory in the Valic case dated back to an OCC decision giving NationsBank permission to sell annuities.
Insurance industry representatives were quick to criticize the OCC decision.
"This clearly contravenes our interpretation of federal law," said Robert Rusbuldt, vice president of federal affairs for the Independent Insurance Agents of America.
"No one has been arguing that national banks can sell insurance in towns of over 5,000, and now, overnight, a national bank is doing this," he added.
"This even goes beyond selling insurance," said Gary Hughes, vice president and chief counsel of securities and banking at the American Council of Life Insurance. "Banks could use this as a mechanism to get into insurance underwriting as well.
"With Congress looking fairly closely at what the OCC is doing by administrative fiat, I'm surprised that the agency would do this - it's an in-your-face move," he declared.
However, OCC chief Counsel Julie Williams said the agency would frown upon applications from state-chartered banks that attempt to switch solely to expand their insurance powers.
"We wouldn't look favorably on that sort of artificial structure," Ms. Williams said. "We're looking at existing operations of existing banks that are interested in reorganizing."
The agency based its decision on section 35 of the National Bank Act, which gives the Comptroller's Office the power to allow converting institutions to retain "nonconforming" assets, which under normal circumstances must be divested before an application is approved.
Forcing Magna to drop its insurance operations would have put the newly chartered national bank at a competitive disadvantage with state-chartered institutions, said OCC spokesman Ed Alwood. He emphasized that the OCC approves applications like Magna's only on a case-by-case basis.
"Some are trying to paint this like we have opened the barn door, but it's not like that at all," Mr. Alwood said.
This case was "very unusual" because Magna is based in a state that allows its banks to engage in insurance activities, Mr. Alwood added. "The OCC hasn't given Magna a right that the state banks don't have, and Magna must abide by all state insurance laws."
The OCC also allowed Magna's trust company subsidiary to retain farm real estate brokerage services generally not permitted for national banks. Missouri-chartered banks, however, are allowed to engage in these activities.
"The effect of this application approval is to let national banks gain parity with state chartered banks," Mr. Roderer said.
