Vermont, the latest state to try to keep pace with changes in the federal banking charter, will allow its banks to sell insurance from small towns.

Elizabeth R. Costle, Vermont's commissioner of banking, insurance, and securities, last week ruled the state's "wild card" statute overrides another Vermont law barring affiliations between banks and insurance companies.

That scenario in Vermont and at least a dozen other states was triggered in March by the Supreme Court's ruling in the Barnett Bank case, which stated state regulators cannot ban national banks from selling insurance in towns with fewer than 5,000 people.

The decision sent state regulators scrambling to find ways to keep local banks from being shoved aside by national banks.

Wild-card laws give state-chartered banks the virtually same powers as national banks. But in order to sell insurance from small towns, state banks must affiliate with insurance companies.

Vermont is one of 13 states with anti-affiliation statutes that can conflict with wild-card laws. Pennsylvania regulators blazed the trail in May, picking the wild-card law over the anti-affiliation statute.

According to the Conference of State Bank Supervisors, 10 more of the 13 states are contemplating using wild-card statutes to grant their banks the same insurance powers available to federally chartered institutions. Illinois' wild-card statute specifically exempts insurance sales from the list of national bank powers that state banks may be granted.

"State-chartered banks really stand to benefit from Barnett," said Ellen Lamb, vice president of bank supervisors group. "The decision created an impetus for state bank supervisors to grant their banks these new insurance powers."

In response to the Barnett decision, legislatures in Florida and Hawaii also have passed bills to increase the insurance powers of state banks. The Florida legislation would lift insurance sales restrictions from banks that are affiliates of holding companies, and would set up insurance licensing procedures for bank employees. Hawaii's measure would lift the state's ban on bank sales of insurance. Both bills are awaiting governors' signatures.

Even in some of the most restrictive states, bank regulators are working with insurance commissioners to hammer out guidelines under which state banks could sell insurance.

Texas, for example, effectively bans bank insurance sales by requiring all bank directors and officers to be licensed agents. But in the wake of the Barnett decision, Texas Banking Commissioner Catherine A. Ghiglieri said she is working with the state's insurance department and the Office of the Comptroller of the Currency to ease that law.

"We're on the road to allowing banks to sell insurance," Ms. Ghiglieri said. The Texas Department of Insurance is expected to issue a proposal within the next week, Ms. Ghiglieri said.

Other states are stepping more gingerly toward lifting their bans on bank sales of insurance. Kentucky's legislature, for example, has asked its banking and insurance departments to submit a study on bank sales of insurance by July 1, 1997. New Mexico and New Hampshire also are conducting studies on bank insurance sales.

Banking lawyer David Roderer cheered the recent Vermont decision because it took the fastest route to expanding its banks' insurance powers.

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