HOUSE BANKING BILL PROTECTS INSURERS

HOUSE BANKING BILL PROTECTS INSURERS

House Banking Committee Chairman Fernand St Germain, D-R.I., and ranking Republican Chalmers P. Wylie, Ohio, Wednesday unveiled a version of bank deregulation legislation giving banks fewer powers than Senate proposals.

At the same time, the version they will place before the House Banking Committee gives banks less leeway to enter into the insurance business than the bill that passed the Senate Banking Committee.Banking groups have vowed to try to restore on the Senate floor and in the House loopholes through which bank holding companies have begun making inroads into the insurance industry.

The House draft bill indicates that the House leadership has rejected claims by bankers that they would add competition if they were permitted insurance sales.

Paul Equale, vice president of the Independent Insurance Agents of America, applauded the committee print noting that it goes even further than the Senate bill in recognizing that insurance agents' concerns are also sound public policy.

The House bill closes the so-called South Dakota loophole by prohibiting subsidiaries of bank holding companies from engaging in insurance activities.

Like the Senate version, it will permit a state bank and any subsidiary that is also a subsidiary of a bank holding company to sell insurance in states where this is permitted, but only in the same state in which the holding company's banking operations are principally located.

Bank holding companies that acquired an out-of-state bank prior to March 2, 1988 are permitted to continue their insurance activities but only in one state.

The difference between insurance provisions in this draft and the Senate BankingCommittee's bill is that the House draft forbids transfer of the right to sell insurance if a state bank is acquired by a bank holding company .

This will plug a potential loophole that could allow bank holding companies to purchase state banks and use their insurance authority to sell insurance, Mr. Equale said. The legislation provides much more limited banking powers than the Senate version. The St Germain-Wylie print creates so-called happy banks defined as free-standing national banks with new powers to underwrite and deal in commercial paper and municipal revenue bonds.

If a bank holding company wants to deal in asset-backed securities it must establish a full power qualified securities subsidiary. The 35 largest bank holding companies and securities firms are prohibited from merging, however.

If a subsidiary is formed, securities activities of banks must be transferred to the new entity. These activities include: acting as an agent for a securities broker; buying and selling options or futures; providing investment advice regarding securities, foreign exchange or other investment matters; conducting foreign exchange operations or currency swaps other than for commercial lending or trade transactions.

In contrast, the bill that will go to the Senate floor would allow bank holding company affiliates to immediately underwrite commercial paper, mortgage-backed securities, municipal revenue bonds and asset-backed securities on passage.

After 100 days, banks could underwrite securities issued by mutual funds and corporate bonds. And a vote in 1991 could extend securities powers further to the underwriting of shares of stock.

The more limited bill being put forth by Rep. St Germain and Rep. Wylie links the securities powers to evidence that the bank has a good community benefit rating.