Court Allows Banks to Sell Insurance in State of Delaware

A federal appeals court on Monday overturned a Federal Reserve Board ruling that had barred bank subsidiaries from selling and underwriting insurance.

The decision by the 2nd U.S. Circuit Court of Appeals allows Citicorp, the nation’s largest bank-holding company, to continue its insurance operations through a subsidiary company.

The court struck down a Fed ruling that blocked a new Delaware law allowing a bank’s subsidiary to sell and underwrite insurance nationwide. The Delaware law, enacted in May, 1990, gives banks incorporated in the state the ability to write insurance policies nationwide through a subsidiary.

The Fed had ruled that the state law gave banks powers that were prohibited by federal regulations. But the appeals court let the Delaware law stand, citing an earlier decision by the Fed concerning bank subsidiaries.

Citicorp had argued the Fed lacks jurisdiction over Delaware law because Citicorp’s insurance company, Family Guardian Life Insurance Co., is a division of the bank, not a subsidiary. Family Guardian is controlled by Citibank of Delaware, a subsidiary of Citicorp.

Banking lawyer H. Rodgin Cohen said the decision “emphasized the need for regulators to come to grips with the fact that the financial services industry is a single industry today, and not a group of segmented or isolated businesses.”

Cohen had filed a friend-of-the-court brief on behalf of the New York Clearinghouse Association, a group of large New York banks that favored the expanded powers.

Citicorp spokesman Bill Ahearn said the bank was “very pleased with the decision.”