A Big Deal For Big Banks

Of all the benefits bankers hoped to gain from last year's unsuccessful bank-reform bill, interstate branching was the most precious. And of all the obstacles the banks encountered in their failure, the most formidable were insurance agents--a grass-roots group that opposed reform because it would have granted banks broad powers to sell insurance.

Now, however, both sides may be nearing a compromise that ultimately could allow banks to branch across state lines. Six major regional banks, led by Charlotte (N. C.)-based NationsBank Corp., have struck a deal with the powerful Independent Insurance Agents of America. The agents will accept interstate branching if the banks agree to limits on insurance sales. The Treasury Dept., badly embarrassed by its failure to expand banks' powers last year, is quietly trying to bring other banks and trade groups into the bargain.

LOCAL CONTROL. Banks and insurance agents both stand to gain from the deal. Big regionals, such as BankAmerica Corp. of San Francisco, Providence-based Fleet"/Norstar Financial Group, and First Interstate Bancorp in Los Angeles, believe they can sharply reduce costs with interstate branching. Although banks can own institutions in other states, they often must maintain local managements and boards. Eliminating such expenses would help offset rising regulatory costs, including a 22% hike in premiums voted on May 12 by the Federal Deposit Insurance Corp.

For their part, insurance agents could rest easier if they knew limits were placed on banks' sales of life, property, and annuity policies. For example, the compromise would restrict banks from setting up insurance units in Delaware, the only state that lets out-of-state banks come in and form nationwide insurance subsidiaries.

When word of the deal first leaked out, other bankers cried foul. The Independent Bankers Assn. of America (IBAA), which represents smaller banks, worried about competition from big regionals. It accused NationsBank Chairman Hugh L. McColl Jr. of selling out. Many bankers have long sought approval to expand their menu of consumer products by selling insurance.

The opposition has mellowed since the Treasury began courting IBAA Executive Vice-President Kenneth A. Guenther. But Guenther is still driving a hard bargain. At a May 11 meeting, he made it plain that small-town bankers would rather be bought out than face big-bank competition. They want any deal to require that regionals buy existing institutions in towns of 50,000 or fewer people rather than just open branches.

Neither the Treasury nor the American Bankers Assn. has agreed to IBAA's demands. "We're searching for that elusive piece of turf that the whole industry can stand on," says Assistant Treasury Secretary Jerome H. Powell.

Citicorp--which sells insurance through a Delaware subsidiary--is likely to challenge the Gang of Six regionals. And state banking supervisors are furious that the proposed deal would preempt states' insurance laws.

Even if banks find common ground, their plan must clear Congress. House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) is skeptical of interstate branching. What's more, the would-be bargainers are up against the clock: With 16 weeks left in the session, Congress has held no hearings on the as-yet-undrafted bill.

But while the calendar is running out this year, banks may have even less chance if they wait for 1993. "Next year," a top lobbyist says, "we're going to have 100-plus new members in the House, potentially a new Administration, maybe a new House leadership. If banks want to get interstate, that argues that the time is now." The next few weeks will test how much banks will swallow to win that right.

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