Two Setbacks for Retail Bankers

This year's banking legislation was intended to give banks broader authority to offer consumer services but ended up dealing them a double blow.

Rather than expand powers, the bill blocks states from letting banks underwrite insurance.

At the same time, it opens financial institutions to more competition by giving nonbank rivals like Sears, Roebuck and Co. a way to issue MasterCard and Visa credit cards.

Still, the banking industry does have the consolation that things could have turned out worse.

As the 10-month debate over the legislation neared a climax, the insurance lobby was furiously angling to roll back the limited insurance powers banks now enjoy. It failed, except for insurance underwriting. As a result, states can continue to authorize banks to sell insurance.

The underwriting limit was a disappointment to giant banking companies that had hoped to take advantage of a 1989 Delaware law. That controversial statute permitted banks to underwrite life, health, and other insurance products nationwide via subsidiaries chartered in the state.

Power Taken Away

The federal bill passed last week effectively overrides Delaware law by scaling back the powers of state-chartered banks to those of national banks, which can underwrite only credit, title, and debt cancellation insurance, as well as annuities.

The bill does exempt three bank-owned insurance companies in Delaware already licensed to underwrite insurance. One is owned by Citicorp's Delaware bank; the two others are owned by an affiliate of Bankers Trust New York Corp.

But the measure evidently will prevent those companies from underwriting policies for residents outside Delaware - a big blow to Citicorp's strategy.

Spokesmen at Citicorp and Bankers Trust said last week that it was too early to determine the bill's probably effect on their insurance plans.

The underwriting curb was a strategic blow, not one that will immediately affect many institutions, according to Philip S. Corwin, senior legislative counsel at the American Bankers Association. "As of now, there aren't a huge number of banks interested in underwriting insurance," he said.

Most banks are more concerned about their ability to sell insurance alongside traditional deposit and loan products, Mr. Corwin said.

While the new legislation did not provide the blanket authority to broker insurance that many had hoped for, it also did not roll back existing powers. The 15 states that permit banks they charter to sell insurance can continue to do so.

And Delaware will still be able to let bank affiliates under its jurisdiction market nationwide - a key issue for large New York banks like Citicorp and Chase Manhattan Corp. that have operations in the state.

Comptroller's Rulings

Furthermore, recent rulings by the Comptroller of the Currency have opened the door for national banks to sell many types of insurance product, such as fixed-rate annuities.

"We will be advising banks that there are a number of insurance products they can sell," Mr. Corwin said.

On the credit card front, the bill unexpectedly gave Sears powerful ammunition for its battle to launch a Visa card program.

When Sears acquired Mountainwest Savings and Loan in Utah from the Resolution Trust Corp. last year, it tried to use the thrift's longtime Visa membership to issue credit cards.

Provision on RTC Thrifts

Visa, citing a 1989 bylaw that denied access to nonbank competitors, canceled the thrift's membership. Sears filed an antitrust suit, which is pending.

The banking bill does not mention the dispute but includes a provision that obliges all companies to continue to honor performing contracts with thrifts sold by the RTC. Membership in associations like Visa is included.

The provision, pressed by Sen. Jake Garn, R-Utah, opens up the possibility that other nonbanks could use thrift acquisitions to gain access to Visa or to MasterCard, which also has membership curbs.

Sen. Alfonse D'Amato, R-N.Y., said that by increasing competition, the move could help him fight for lower card interest rates.

Congressional aides said the bill also should help the RTC garner the full value of failed thrifts. If companies could cancel contracts on sale of a thrift, they said, the value of assets the RTC is trying to sell would be put in question.

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