Would Leach Bill Help Banks Sell Insurance? Tell Us Another

Article excerpt

House Banking Chairman Jim Leach's May 3 speech before the Chicago Federal Reserve Bank's conference on bank structure and competition may be the best piece of fiction since Walt Disney's "Pollyanna."

Mr. Leach asserts that his legislation "allows for insurance underwriting and agency affiliations," and that "regardless of what critics contend, the bill is a floor, not a ceiling."

If his latest version is a floor, that floor is a sub-basement whose ceiling is lower than the cellar door.

The Supreme Court's Barnett decision was a sweeping victory for banks. It changed Mr. Leach's strategy and that of insurance agents. Why else could the Independent Insurance Agents of America swallow the latest bill?

This bill would subject the industry to unending rounds of litigation in which the law would be tilted in favor of 50 separate insurance commissioners and agent trade associations.

The Barnett decision affirms the supremacy of section 92 of the National Bank Act over the McCarran Ferguson Act. It strikes down state anti affiliation statutes used to bar national banks from selling insurance, and establishes a far broader preemption analysis than the single line lifted from the court's decision and proclaimed as the "Barnett standard."

This alleged standard has been hoisted by bank insurance foes - and is a counterfeit. Bankers are not taken in by language and terms crafted by the very forces that would keep banks out of the insurance business in order to defend their special privileges and protected marketplace.

In fact, the Barnett decision aids state-chartered banks in their quest for insurance agency powers. The Leach legislation would not.

Because the Leach bill would undermine Barnett's supremacy, state and national banks in anti-affiliation states would lose the opportunity to set up and implement efficient and cost-effective insurance agency activities.

Bankers recognize the potential lost opportunities of supporting the Leach bill. They understand that only a 5% share of the life insurance market would earn them four to five times the revenue of their recent annuity sales.

The imprecise language in sections of the Leach bill is unacceptable as well. Instead of eliminating state anti-affiliation statutes that limit or impair national bank insurance activities, the bill stipulates that none of its provisions "may be construed as limiting or otherwise impairing the authority of any state to regulate the manner (including the manner of consumer protection) in which a national bank may provide insurance within the state."

This reference to the manner of selling insurance is far broader than the reference to the manner of selling annuities, which is limited to "consumer disclosure requirements or licensing requirements, procedures, and qualifications."

Mr. Leach has added a version of the Baker amendment that generally would make insurance companies owned by bank holding companies, the holding companies themselves, and their affiliated banks subject to state anti affiliation laws.

This would further balkanize the financial services industry and is inappropriate "functional regulation. …