The American Bankers Association says only insured depository institutions should have access to the central bank and be authorized to issue most types of smart cards.

"The existing framework for regulating and supervising banks, together with deposit insurance, provides customers with a fundamental assurance that institutions engaged in payments system activities operate in a safe and sound manner," the ABA wrote in an 83-page policy statement on electronic money issued Sunday at its convention here.

"Put another way, it protects customers from fly-by-night participants," said the report, titled "The Role of Banks in the Payments System of the Future."

Along the same line, the Bankers Roundtable last month announced formation of a Banking Industry Technology Secretariat, know as Bits, to look after the industry's payments system interests. One member of the group's board will be a bank chief executive designated by the ABA.

The recommendation on chip cards would not affect prepaid phone cards, subway fare cards, or other products that can be used only within a closed network. Rather, ABA chief economist James Chessen said, the trade group wants to block nonbank cards that are analogues of cash, usable at multiple merchants.

Blockbuster Video was reportedly considering a smart card that could be used to rent videos at its stores or to buy fast food at McDonald's. Mr. Chessen said such a plan would create a parallel, unregulated payment system without assurances to consumers should the providing organization be unable to cover its obligations.

The failure of a nonbank smart card issuer could destroy public confidence in the payment system and damage the economy, Mr. Chessen said. Banks, thrifts, and credit unions, he said, are less likely to default because they have capital requirements and are subject to safety-and- soundness exams.

"The philosophy here is to build upon the system we have," Mr. Chessen said.

The ABA also said the industry should create consumer-protection guidelines and uniform standards for the design and operation of smart cards. For example, the industry should assure there is agreement on where the computer chips are embedded in the plastic cards. This would allow vendors to develop machines that can read all standard cards.

Regulation may be needed eventually, the ABA report said. But the government should wait until the market develops further. Outgoing ABA president James M. Culberson Jr. will head a steering committee to pursue this proposal.

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