WASHINGTON - A coalition of five banking trade groups is asking a federal appeals court in Chicago to allow national banks to sell insurance statewide from small towns.

The groups, who filed a friend-of-the-court brief early this month, want the U.S. Court of Appeals for the Seventh Circuit to overturn a trial court's ruling that states can limit a national bank's insurance customer base to residents of small towns.

If the ruling stands, banks - losing access to much of the market - would find insurance sales considerably less profitable.

"The precedent to be set in this case is obviously of considerable importance, not only to the bank that is the party to this action, but to all banks in Indiana, in the states of this circuit, and to banks, their customers, and insurance companies throughout the nation," the groups wrote.

The trade groups object to Indiana Insurance Commissioner Donna Bennett's effort to prevent NBD Bank from selling insurance to people outside the small town where it based its operation.

The groups wrote that Ms. Bennett violated the National Bank Act, which allows banks to sell insurance in towns with fewer than 5,000 residents.

That law does not place any geographic restrictions on where the bank's insurance customers can come from, the group wrote.

The U.S. Court of Appeals for the District of Columbia in 1993 upheld national banks' power to sell insurance to customers anywhere from a small town.

However, U.S. Magistrate Judge V. Sue Shields sided with the state insurance commissioner in the NBD case, agreeing that Congress' intention was not to give national banks wide insurance powers but rather to make small towns more attractive to national banks by allowing residents there to borrow money and buy insurance from them.

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