WASHINGTON - Sweeping language that could roll back national bank insurance powers was added to the House's regulatory relief legislation over the weekend.
The bill, which the House Banking Committee will take up today, would bar the Comptroller of the Currency from expanding national banks' power to sell insurance. The measure also would hand control over national bank insurance regulation to the states.
"It knocks banks out of the insurance box," said Karen Shaw, president of ISD/Shaw Inc., which tracks bank regulation and legislation. "It is very sweeping language."
While talk of a "comptroller's moratorium" provision has been circulating for weeks, actual legislative wording did not surface until Monday.
Under the legislation, states will be able to regulate "the extent to which, and the manner in which, a national bank may engage in insurance activities."
The new language would give state regulators the power to define insurance products. For example, state regulators could define annuities as insurance, and could bar banks from selling them. The Comptroller's office has said repeatedly that annuities are not insurance.
"Banks are going to have big, big problems with this," said Bert Ely, a financial institutions analyst. "This gives states carte blanche when defining what insurance is, with no federal oversight."
The American Bankers Association, which has said it will oppose any bill that restricts bank insurance powers, will likely try to block passage of the regulatory relief bill.
However, the Independent Bankers Association of America has not decided whether to support the bill. Nevertheless, Ron Ence, the IBAA's director of legislative affairs, said the language "doesn't come close to satisfying our concerns.
Rep. Jim Leach, the Banking Committee chairman, wants the bill "to protect the status quo," Mr. Ence said. The proposed language "falls far short" of that, he complained.
IBAA opposition to the legislation could prove crucial in any attempt to block it. "We'll have a much harder time stopping this without a unified industry," said one bank lobbyist.
The bill does, however, put some limits on state insurance regulators.
The measure would create an exception in states where national banks are currently litigating their right to sell insurance. If a bank wins its case, the bill would grandfather the bank and allow it to continue the sales even if the laws of the bank's home state don't allow it.
Still, the insurance industry was overjoyed by the new language, most of which came from a sample amendment by the American Council of Life Insurance.
"This represents the height of compromise," said Phil Anderson, senior Washington representative for the Independent Insurance Agents of America. "If banks cannot support this in the environment of reg relief, then all of the varnish will be ripped of their lip service to seek a compromise."
The Comptroller's office staunchly opposes the amendment.
"This hurts national banks because it deprives them of a low-risk source of earnings, and hurts consumers because it limits competition," said Lee Cross, deputy comptroller for public affairs.