U.S. Won’t Appeal Bank Insurer Ruling

In a big victory for banks seeking broader powers, the U.S. government has decided not to appeal a court ruling that clears the way for Citicorp to underwrite and sell insurance nationwide.

The decision could be a fatal blow to efforts to strike down a 1990 Delaware law that permits major banks to market insurance products nationwide via subsidiaries in the state.

The powerful insurance lobby, which staunchly opposes the law, immediately picked up the legal battle started by the Federal Reserve, asking the Supreme Court on Tuesday to hear its appeal. But the chances of that tactic succeeding are considered slim.

Only one other roadblock remains for Citicorp, but it is a major one. Congress could decide this year to override the Delaware law as part of a comprehensive package to overhaul banking law.

While President Bush’s reform package did not include that provision, House and Senate committees have approved such a change under pressure from insurance industry lobbyists. The prospect of those amendments being adopted by the full Congress this year is unknown.

The latest twist in the insurance battle came last week, when the Justice Department revealed that it would not represent the Fed before the Supreme Court, a Fed spokesman confirmed.