But a Clear Victory May Yet Emerge

Article excerpt

The widely reported efforts of certain banks and the insurance industry to fashion compromise federal banking legislation has presumably faltered.

Their draft legislative package would have redefined the authority of banks to engage in various insurance activities, and included annuities brokerage within the restrictive scope of its provisions.

Bad News from New York

The victory that the agents were unable to win in this Congress, however, may yet be within their reach in the courts.

In another blow to the asserted authority of banks to offer annuities, a New York State court recently declared that state law does not authorize such brokerage activities.

Significantly, Justice Harold J. Hughes of the New York Supreme Court ruled that state-chartered banks are without authority to broker fixed or variable-rate annuity products under the "incidental power" provision of New York State Banking Law.

Parallel Provisions

That statute mimics the "incidental power" provision of federal banking law, 12 United States Code section 24 (seventh), which identically reads that banks are thereby authorized to "exercise all such incidental powers as shall be necessary to carry on the business of banking."

In this most recent decision, in the matter of New York State Association of Life Underwriters Inc. et al. v. Considine, Justice Hughes noted that state law does not expressly authorize state banks to broker annuities, and he observed that the activity is not "necessary" to accomplish the enumerated powers set forth in the state statute. Therefore, he reasoned, no such authority exists.

Disturbing Echo

The restrictive reasoning of that lower court disturbingly echoed the narrow construction of section 24 (seventh) of the National Bank Act articulated in the recent decision by the U. …