State Farm Explores Banking Concept
Ted Hampton Bloomberg News, THE JOURNAL RECORD
BLOOMINGTON, Ill. -- State Farm Insurance Cos. may soon acquire or create a thrift, broadening the range of services it offers to about 66 million holders of home, auto and life policies.
State Farm's President and CEO, Edward Rust Jr., on Jan. 6 sent a memo to agents and employees saying the mutual company was "exploring the concept of either buying or developing" a bank, according to spokesman Steve Witmer.
"At this point, it's an exploration; we don't have any announcements to make." For now, the nation's biggest writer of home and automobile policies has modest goals in consumer banking, Witmer said. "Our main concern is meeting the changing expectations of the future, given the blurring distinction between banking and insurance companies." For the retail insurance industry, the move is significant, analysts say. Property and casualty insurers face new competition from banks if Depression-era restraints on banks and securities companies are reformed. Jim Leach, a Republican from Iowa who heads the House Banking Committee, wants to rewrite the Glass-Steagall Act of 1933 to ease banks' access to the insurance and securities businesses. State Farm's potential move into banking "reflects a highly competitive, innovative and active market," said James H. Chessen, chief economist at the American Bankers Association. It also underscores debate over how the regulators of banks, securities firms and insurers should respond to changes underway in the nation's financial system. "The issues are, what rules everyone plays by, and are the regulations and safeguards consistent across all providers and in all cases?" said Chessen. An insurer's ease in setting up a thrift also highlight how the aging patchwork of laws and rules governing the system must be updated, so single companies can offer a full range of services, Chessen said. …