Add one more feud to the battle over financial industry reform.
Much to the dismay of insurance industry lobbyists, state insurance commissioners are vigorously lobbying against the bill. The regulators complain legislation would eliminate virtually all state control over banks that get into the business.
"This bill does a nuclear wipeout of state authority," John Chesson, senior legislative counsel for the National Association of Insurance Commissioners told state lawmakers attending a conference here last week.
The legislation, which House Republicans vow to bring to the floor in early May, would let banks merge with insurance and securities firms. The bill also contains new rules for securities and insurance sales by banks.
Insurance industry officials, desperate for legislation that will let their firms acquire banks, are dumbfounded by the state commissioners' opposition.
"I find it very ironic and troubling," said David C. Turner, vice president for state government affairs for the Independent Insurance Agents of America.
But Mr. Chesson, speaking on a panel sponsored by the National Conference of State Legislators, was undaunted. His primary objection: One of the bill's key provisions declares "no state shall prevent or restrict" banks from engaging in insurance or any other permissible business.
That passage would render states powerless to supervise banks, he argued, even though the bill also stipulates that state insurance commissioners would be the primary supervisors for bank insurance activities.
"We think any type of regulation is a restriction. That's the whole purpose of regulation," he said. "So states are completely preempted."
Mr. Chesson said insurance commissioners have tried to work out a deal over insurance language with officials from Banc One Corp. and NationsBank Corp., but complained that bankers are determined to eviscerate state authority. "These people do not want state regulation," he said. "They consider it a hindrance; they consider it an inconvenience; and they consider it unnatural."
But insurance industry lobbyists said the regulators have it all wrong. They contend the bill would stop the recent erosion of state power because it also would, for the first time, give states equal standing with the Office of the Comptroller of the Currency in disputes over regulation of bank insurance sales.
"That in itself is almost worth the bad pieces of the bill," said Mr. Turner. "Throw in the provisions requiring banks to follow new consumer safeguards and get insurance licenses, and you're really expanding the power of state insurance regulators."
Steve Johnson, lobbyist for the American Insurance Association, said the prospect of stronger state authority has caused bankers and the Comptroller's Office to fight the bill.
"Why? Because they know these provisions will work," he said.
American Bankers Association lobbyist Floyd Stoner agreed, warning that banks would be hurt if new limits are placed on the comptroller's authority.
Steve Verdier, lobbyist for America's Community Bankers, derided a provision that would prevent the formation of new unitary thrift holding companies. He said Congress should drop the current legislation and start over.
