oversight

Bank Powers: Issues Relating to Banks Selling Insurance

Published by the Government Accountability Office on 1990-09-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                             ,.._I~... --_.“__~-.--


                                                        BANK POWERS -
                                                        Issues Relating to
                                                        Banks Selling
                                                        Insurance




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General Government Division

B-240696

September 26,lQQO

The Honorable John J. LaFalce
Chairman, Committee on Small
  Business
House of Representatives

Dear Mr. Chairman:

This report, prepared at your request, evaluates the potential effects of banks selling
insurance on consumers, other insurance sellers, and bank safety and soundness. The report
also addresses the extent of coercion in bank sales of insurance and the need for regulatory
controls to protect consumers.

As arranged with the Committee, unless you publicly announce the contents of the report
earlier, we plan no further distribution until 30 days from the date of the report. At that time
we will send copies of this report to other appropriate congressional committees, federal
banking agencies, and others on request.

Major contributors to this report are listed in appendix II. Please contact me on 276-8678 if
you or your staff have any questions concerning this report.

Sincerely yours,




Craig A. Simmons
Director, Financial Institutions
  and Markets Issues
                                                                                       I




Executive Summ~


                   If more banks gain powers to sell insurance, both property/casualty and
Purpose            life/health, opponents charge that banks will coerce consumers to buy
                   insurance as a condition to receive credit. Further, insurance sellers sug-
                   gest that banks selling insurance would compete unfairly with other
                   sellers and endanger bank safety and soundness. In contrast, banks and
                   some consumer groups assert that banks selling insurance would benefit
                   consumers through cheaper premiums and convenient service.

                   The Chairman of the House Committee on Small Business requested GAO
                   to evaluate the potential effects of banks selling insurance on con-
                   sumers, other insurance sellers, and bank safety and soundness. The
                   Chairman also asked GAO to address the extent of coercion in bank sales
                   of insurance and the need for regulatory controls to protect consumers.


Background         insurance activities, most banks can sell credit insurance-insurance    to
                   repay a borrower’s debt if the borrower dies or becomes disabled. More-
                   over, some banks have additional powers to sell insurance. According to
                   a 1987 survey published by the Federal Deposit Insurance Corporation
                   (FIX), about half of the states permitted state-chartered banks to sell
                   most forms of insurance. Also, in towns with populations less than
                   6,000, bank holding companies, national banks, sandsome state banks
                   can sell all types of insurance. A bank holding company with assets less
                   than $60 million can sell some types of insurance.

                   In this report, GAO discusses bank sales of insurance products under-
                   written by an unaffiliated insurance company, which bears all risk of
                   loss due to policyholder claims. GAO does not deal with the risks that
                   might exist should banks be allowed to underwrite insurance or affiliate
                   with insurance companies.

                   To identify the potential effects of banks selling insurance, GAO met with
                   a judgmental sample of banking and insurance organizations, their regu-
                   lators, consumer advocates, and academic experts. To assess the extent
                   of coercion by banks, GAO reviewed Federal Reserve-sponsored studies
                   of credit insurance sold by banks and spoke with regulators in nine
                   states where banks have limited powers to sell insurance. (See pp. 8-16.)


                   Banks selling insurance could potentially benefit consumers through
Results in Brief   reduced insurance costs and increased convenience. However, if more
                   banks sell insurance, opportunities may increase for banks to coerce
                   consumers to buy insurance as a condition to receive credit.


                   Page 2                                    GAO/GGDBO-113   Bank# Selline hwuance
                       Executive   sulnmary




                       Available evidence does not indicate that coercion is a widespread
                       problem in existing bank sales of insurance. Tying credit to the sale of
                       other products is already illegal. Additional measures, such as disclosing
                       that insurance purchases are voluntary or separating insurance sales
                       from credit approval, could protect consumers from any increased
                       potential for abuse.

                       Expanded bank sales of insurance would increase competition for other
                       insurance sellers. While a bank could abuse its position as a source of
                       credit to compete unfairly against other sellers, existing regulatory con-
                       trols, if properly enforced, should serve to limit credit abuses.

                       Bank sales of insurance underwritten by an unaffiliated insurance com-
                       pany present no risk to bank safety and soundness. The insurer under-
                       writing the policies bears the financial risk of losses under policies sold
                       by the bank.


GAO’s Analysis

ConsumersMay Benefit   Banks could possibly reduce consumers’ insurance costs if they could
but May Also Need      lower the costs of selling policies through joint marketing of bank and
                       insurance products. The increased convenience would also save con-
Protection             sumers’ time and effort in purchasing insurance products. However, it is
                       not possible to anticipate the extent to which banks can lower the costs
                       of selling insurance or whether these savings would result in cheaper
                       insurance premiums.

                       Like other lenders selling insurance, a bank could tie the purchase of
                       insurance to the granting of credit. Coercive tie-ins, where the customer
                       is forced to purchase an additional product to receive credit, are illegal
                       under existing banking law. Also, a bank’s ability to coerce borrowers
                       into purchasing insurance is limited not only by other sources of insur-
                       ance but also by other sources of credit.

                       Although credit insurance is most susceptible to tie-ins, Federal Reserve
                       studies found favorable consumer perceptions, which did not indicate
                       widespread abuse by banks. Ninety percent of credit insurance buyers
                       in 1986 thought credit insurance was a good product and would
                       purchase similar coverage again. The consensus of state banking and
                       insurance regulators GAO interviewed was that, while instances of abuse



                       Page 3                                    GAO/GGD-f.M-113   Banks Selling Insurance
                            Executive   Summary




                            may occur, coercive tie-ins are not widespread in bank sales of insur-
                            ance. Fourteen of 17 regulators GAO interviewed did not believe banks
                            routinely coerce borrowers to buy credit insurance.

                            While coercive tie-ins are already illegal, additional measures could pro-
                            tect consumers from the perception that buying insurance could
                            improve chances of getting loans. Such measures include disclosing that
                            insurance purchases are voluntary and requiring that insurance mar-
                            keting be separated from the credit approval process. However, such a
                            separation might reduce or eliminate the cost savings that would other-
                            wise flow from joint marketing of banking and insurance products. (See
                            pp. 16-26.)


Increased Competition for   Expanded bank sales of insurance would create a more level playing
                            field among banks and other depository institutions and lenders that
Other Sellers               now sell insurance. While insurers underwriting policies may benefit
                            from the flexibility of another channel for reaching customers, other
                            insurance retail sellers would face increased competition from banks
                            selling insurance.

                            Banks have potential competitive advantages over other insurance
                            sellers. For example, banks may be able to sell insurance more cheaply
                            through joint marketing of bank and insurance products. Also, a bank-
                            affiliated insurance seller has access to bank customers and customer
                            information and can share overhead costs with the bank. These advan-
                            tages are not unique to banks, and any large insurance seller has an
                            advantage over small agents.

                            Regulatory measures eliminating joint marketing would reduce banks’
                            competitive advantages over other sellers. For example, a bank could be
                            prohibited from sharing customer information or office space with its
                            insurance operations. While separate marketing for a bank and its insur-
                            ance activities could protect other insurance sellers from increased com-
                            petition, such measures would forestall consumers gaining potential cost
                            savings and increased convenience.

                            Finally, banks could give preferential treatment to affiliated insurance
                            agencies or deny credit to competing insurance sellers. Banking laws and
                            regulations, including sections 23A and 23B of the Federal Reserve Act,
                            limit lending by a bank to its affiliates and require interaffiliate transac-
                            tions to be on a nonpreferential basis. However, similar restrictions do
                            not apply to bank subsidiaries or departments within a bank. (See pp.
                            26-32.)


                            Page 4                                     GAO/GGDBO-113   Bmlca Selling Insureme
                         Executive   Summiry




No Risk to Bank Safety   Expanded bank sales of insurance underwritten by unaffiliated insur-
and Soundness            ance companies would not endanger bank safety and soundness. Unlike
                         underwriting, selling insurance does not involve financial risk of loss for
                         policyholder claims. To the extent that sales commissions contribute to
                         banking profits, diversification into selling insurance could strengthen
                         safety and soundness and protect against bank failures. It is not possible
                         to predict whether bank sales of insurance would be profitable. While
                         selling insurance in itself presents no risk to a bank’s capital, any expan-
                         sion into a new business presents management challenges and could
                         divert management attention away from core business responsibilities,
                         such as careful management of credit risk.

                         Additional measures may be necessary to ensure that consumers do not
                         become confused about whether insurance products sold by a bank are
                         backed by federal deposit insurance. One measure would be to expressly
                         disclose to the consumer that insurance products are underwritten by an
                         insurance company and are not covered by banking deposit insurance.
                         (See pp. 33-34.)


                         While consumers could potentially benefit from bank sales of insurance,
Matters for              it is not possible to know in advance the potential for future abuses in
Congressional            tying the granting of credit to the purchase of insurance. If more banks
Consideration            gain powers to sell insurance, Congress may wish to consider the need
                         for additional regulatory measures, including increased disclosure and
                         separation of insurance marketing from the credit process, to protect
                         consumers from possible coercive tie-in problems.


Agency Comments                        GAO
                         As requested by the Committee,    GAO did not obtain written comments on
                         this report.
                         Reserve,     FDIC,
                                          discussed the report with officials at the Federal
                                        and Office of the Comptroller of the Currency and has
                         incorporated their comments where appropriate. Agency officials gener-
                         ally agreed with the conclusions contained in the report.




                         Page 5                                    GAO/GGlMO-113   Ba.nke Selling Inmranw
                                                                                                 I
contents


Executive Summary                                                                                        2

Chapter 1                                                                                             8
Introduction            Banks Selling Insurance
                        Insurance Delivery Systems
                                                                                                      8
                                                                                                     11
                        State Regulatory Control of Insurance Sales                                  13
                        Objectives, Scope, and Methodology                                           14

Chapter 2                                                                                            16
Consumers May           Bank Entry May Have Little Effect on Insurance
                             Premiums
                                                                                                     16
Benefit but May Also    Bank Sales of Insurance Increase Potential for Abuse of                      18
Need Protection From         Consumers
Potential Abuses        Limited Evidence Does Not Indicate Widespread Abuse of                       20
                             Credit Tie-Ins
                        Controls Over Abusive Practices of Banks Selling                             22
                             Insurance
                        Conclusions                                                                  26
                        Matters for Congressional Consideration                                      26

Chapter 3                                                                                            26
Increased Competition   Competitive Consequences of Banks Selling Insurance                          26
                        Potential Competitive Advantages for Banks Selling                           27
for Other Sellers but        Insurance
No Risk to Banking      Banks Could Abuse Credit to Compete Unfairly Against                         29
Safety and Soundness         Other Sellers
                        Controls Can Limit Abuses and Ensure Competition                             30
                        Insurance Sales Present No Risk to Banking Safety and                        33
                             Soundness
                        Conclusions                                                                  34

Appendixes              Appendix I: Organizations and Individuals Interviewed                        36
                        Appendix II: Major Contributors to This Report                               38

Table                   Table 1.1: Market Shares for Delivery Systems by Type of                     12
                            Insurance in 1986
               Y




                        Page 6                                  GAO/GGD9@113    Jbnlra Sew   Insurance



                                              b
.


    Contenti




    Abbreviations

    FOE
    GAO        Federal Deposit Insurance Corporation

    NAIC
    occ
               General Accounting Office
               National Association of Insurance Commissioners
               Office of the Comptroller of the Currency


    Page 7                                  GAO/GGMO-113   Banka Sellin   hureme
Chapter 1

Introduction


                     In recent years, state legislatures, banking regulatory agencies, and the
                     courts have allowed banking institutions (commercial banks and their
                     holding companies) to expand into selling insurance-property/casualty
                     and life/health. As Congress considers whether nationally regulated
                     banks should be granted powers to sell insurance products, opponents
                     and proponents of expanded powers disagree as to the effect of banks
                     selling insurance on consumers, other insurance sellers, and bank safety
                     and soundness.

                     Insurance agents and industry trade associations allege that banks
                     selling insurance present the following dangers:

                 . banks would charge unreasonably high premiums or coerce consumers
                   to buy insurance as a condition to receive loans,
                 . banks would give preferential treatment to their insurance subsidiaries
                   and affiliates and deny credit to competing insurance sellers, and
                 . inexperienced banks selling insurance could incur losses and endanger
                   the safety and soundness of the banking system.

                     In contrast, banks and consumer groups assert that bank expansion into
                     insurance sales would yield the following advantages:

                 9 banks’ lower costs would result in lower insurance premiums,
                 . increased competition between insurance sellers would also lower insur-
                   ance premiums and improve service quality, and
                 l diversification into insurance sales would reduce risk and possibly
                   increase bank profits, thereby protecting banking safety and soundness.


                     While the Bank Holding Company Act generally separated commercial
Banks Selling        banking from insurance activities, some banks have limited powers to
Insurance            sell insurance. The extent of insurance powers varies depending upon
                     the type of banking institution and its regulatory agency.


National Banks       Among federal banking regulators, the Office of the Comptroller of the
                     Currency (OCC)has approved the broadest range of insurance selling
                     activities. occ charters and regulates national banks under the terms of
                     the National Bank Act. The act expressly authorizes national banks
                     located in towns with populations not exceeding 6,000 to sell all types of




                     Page 8                                   GAO/GGD-30413   Banks Selling Ins-u!
              chapter 1
              Introduction




              insurance.1 cxx has interpreted this authority to allow a national bank
              with a branch in a qualifying small town to sell insurance nationwide.

              In addition, occ relies on the general language in the National Bank Act
              to permit national banks to engage in other limited sales of insurance.
              The act authorizes national banks to exercise all incidental powers nec-
              essary to carry on the business of banking. In approving insurance sales
              activity incidental to banking, occ has allowed national banks to sell
              credit insurance,2 title insurance,3 and certain annuities.4 In addition, occ
              has allowed national banks to lease space to an insurance agency,
              enclose insurance advertisements in bank mailings, sell customer lists to
              insurance agents, and refer customers to insurance agents and share in
              resulting sales commissions.


State Banks   The extent of insurance powers of state-chartered banks varies by state.
              According to a survey of state banking lawspublished by the Federal
              Deposit Insurance Corporation (FDIC)in 1987,6 all states except Texas
              allowed state banks to sell credit insurance. Moreover, as of 1987, about
              half of the states permitted state-chartered banks to sell most forms of
              insurance. Of those states granting insurance powers, nine states
              allowed bank sales of insurance only in towns with populations less
              than 6,000, and one state allowed such sales in towns with populations
              less than 200,000. State-chartered banks also may lease space to insur-
              ance agents in 31 states and share customer lists with insurance sellers
              in 16 states.6

              Since the survey published by FDIC in 1987, several states have taken
              action to expand bank authority to sell insurance. Proposition 103 in
              California repealed a law that made bank holding companies and their
              affiliates ineligible for a license to sell insurance. Delaware, in May 1990,
              enacted legislation allowing state banks to sell insurance nationwide.

              ‘12 USC. section92.
              2Creditinsuranceis designedto repay a borrower’sdebt if the borrower diesor becomesdisabled.
              3Title insuranceprotectsthe policyholder againstundiscovereddefectsin a property’s title.
              4An annuity is an investmentfrom which the owner receivesperiodic paymentsfor a numberof
              years or for a lifetime.
              sVictor C. Saulsbury,“State BankingPowers:WhereAre WeNow?” RegulatoryReview,Federal
              DepositInsuranceCorporation(Apr. 1087).
              6BankDiversification: Into Insurance?,CongressionalResearchService(Feb.9,lQQO).



              Page 9                                                 GAO/GGIM@lU        Banks Selling Insurance
                             chapter   1




                             The Congressional Research Service reported that in 1989 legislators in
                             22 states introduced bills to expand insurance sales by state-chartered
                             banks, and insurance agents had introduced countering legislation in 24
                             states to limit banks selling insurance.


Bank Holding Companies       The Bank Holding Company Act expressly limits the insurance activities
                             of holding companies that own at least one bank. The Act generally pro-
                             hibits a bank holding company or its subsidiaries from selling insur-
                             ance.’ Exceptions to the general prohibition permit bank holding
                             companies to engage in limited insurance activities similar to those that
                             occ has approved for national banks. Exceptions to permit selling insur-
                             ance include:

                         . a bank holding company may sell credit insurance;
                         l a finance company subsidiary may sell property/casualty insurance to
                           protect loan collateral;
                         . a bank holding company may sell all types of insurance in a small town
                           with a population not exceeding 6,000;
                         l a small bank holding company with assets less than $60 million may sell
                           insurance, except for life insurance and annuities; and
                         l a bank holding company selling insurance on May 1, 1982, may continue
                           those activities under a grandfather clause.8

                             Recent decisions by the Federal Reserve Board, which is responsible for
                             administering and interpreting the Bank Holding Company Act, have
                             expanded insurance activities of holding companies. In 1987, the Fed-
                             eral Reserve Board ruled that a bank holding company may sell insur-
                             ance by acquiring a grandfathered holding company. In 1989, the
                             Federal Reserve Board ruled that the general prohibition on insurance
                             activities applies only to nonbank subsidiaries of a bank holding com-
                             pany; therefore, a state bank and its subsidiaries could engage in any
                             insurance selling that the chartering state permits. In other decisions,
                             the Federal Reserve Board has permitted other insurance-related activi-
                             ties, such as advertising insurance products and selling customer lists to
                             insurance sellers.




                             ‘12 USC. 1843(c)(8).
                             *Title VI of the Garn-St.GermainDepositoryInstitutions Act of 1982(P.L. 97-320).



                             Page 10                                               GAO/GGD9@113      Banks Selling Insurance
                         Chapter 1
                         IntroductSon




                         Insurance products-property/casualty      and life/health-are  marketed
Insurance Delivery       and sold through three insurance delivery systems: independent agen-
systems                  cies or brokerage firms, exclusive agents, and direct writers.


Independent Agents and   An independent insurance agency generally represents and sells prod-
Brokers                  ucts of several competing insurance companies. On the other hand, a
                         broker represents the insurance buyer in negotiations with insurance
                         companies to tailor coverage for commercial, large, or unusual risks.
                         Independent agents and brokers are contractors and are not employees
                         of an insurance company. Both agents and brokers assist the insurance
                         buyer in comparing costs and coverage of different policies. In addition
                         to selling insurance products, an independent agent also may handle
                         claims reporting for clients.

                         An independent agent’s income is derived solely from commissions paid
                         by insurers for policies sold, whereas a broker may receive both fees
                         from customers and commissions from insurers. When an insurance
                         policy is sold through an independent agent, lists of customers and
                         policy expiration dates become the property of the agency, and all
                         renewals and associated commissions belong to the agency. As a result,
                         insurance companies represented by the agency may not bypass the
                         agency to sell policies directly to the agency’s clients.


Exclusive Agents         An exclusive agent generally represents and sells the products of one
                         insurance company or group of affiliated companies. An exclusive
                         agent, also referred to as a captive agent, may be an independent con-
                         tractor working for the insurer or an employee of the insurance com-
                         pany. An exclusive agent receives compensation through a mixture of
                         salary and commissions on policies sold. In addition to selling policies,
                         such agents alsomay handle claims for clients.


DbirectWriters           Direct writers are insurance companies who use direct mailing, media
                         advertising, and telephone solicitation to sell their products directly to
                         customers. An insurer may obtain lists of prospective buyers from
                         diverse organizations, including employee unions and banks. Direct
                         mailing eliminates agents and sales staff and thus can result in lower
                         selling expenses. However, the mail order approach generally offers
                         little personal service to customers in selecting coverage.




                         Page 11                                   GAO/GGLMO-113   Banks Selling Inmrance
                                        chapter 1
                                        Introduction




Banks as Insurance Sellers              A bank selling insurance may act as an independent agency representing
                                        several insurers, or a bank could act as an exclusive agent for one insur-
                                        ance company or group of affiliated companies. Finally, a bank can
                                        assist insurers or other insurance sellers with direct marketing activi-
                                        ties. As indicated above, a bank may sell its customer lists to an insur-
                                        ance agency or a direct writing insurer. Also, a bank can include an
                                        insurer’s sales material in mailings to bank customers.


Trends in Insurance                     An insurance company may use more than one insurance delivery
Delivery                                system to sell its policies. An insurer may use different delivery systems
                                        for different types of insurance or in different geographic areas. For
                                        example, an insurer may sell commercial insurance through agents while
                                        using direct mail order to market personal property insurance. Also, an
                                        insurer may use multiple delivery systems to market the same products.
                                        For example, an insurer may sell automobile insurance both through
                                        agents and by mail order.

                                        Delivery methods also differ between life and property/casualty indus-
                                        tries. Table 1.1 illustrates the market shares in 1986 for each delivery
                                        system for both life and property/casualty insurance. Life insurance is
                                        sold largely through exclusive agents who have 66 percent of the life
                                        market, whereas independent agents account for 63 percent of prop-
                                        erty/casualty business.

Table 1.1: Market Sharer for Delivery
Syatemr by Typo of lnrurance in 1988    Delivery rystem                                                                      Market share
                                        Life Insurance
                                           Independent Apents and Brokers                                                                    43%
                                           Exclusive Agents                                                                                  56%
                                           Direct Writers                                                                                     1%
                                        PropertvKasualtv    lnsuiance
                                           Independent Agents                                                                                63%
                                           Exclusive Aaents and Direct Writers                                                               37%8

                                        aThis figure is based on A.M. Best Company data, which do not distinguish between exclusive agents
                                        and direct writers of property/casualty insurance.
                                        Source: Expanded Bank Powers by Sophie M. Korczyk.


                                        According to A.M. Best Company, a statistical and publishing organiza-
                                        tion, as of 1988, direct writers and exclusive agents sold approximately
                                        40 percent of all property/casualty insurance. However, within the
                                        property/casualty industry, direct writers and exclusive agents control
                                        more than half of the market for personal insurance. In 1988, direct


                                        Page 12                                                 GAO/GGD&O-113      Banks Selling Insurance
                       Chapter 1
                       Introduction




                       writers and exclusive agents sold 64 percent of private automobile
                       insurance and 62 percent of homeowners insurance.


                       Under the McCarran-Ferguson Act of 1946, states exercise primary reg-
State Regulatory       ulatory jurisdiction over the insurance business9 Each state has a
Control of Insurance   department of insurance responsible for, among other things, oversight
Sales                  of insurance sellers, insurance marketing and trade practices, and insur-
                       ance policies and premium rates. All states require insurance sellers to
                       be licensed to transact business within the state. Prospective agents and
                       brokers may be required to pass a written examination or fulfill certain
                       training requirements. Thus, a banking institution selling insurance and
                       selected bank employees are required to be licensed like any other insur-
                       ance agent.

                       State insurance regulators are responsible for enforcing state-enacted
                       unfair trade practices laws and regulations to protect consumers from
                       fraud, abuse, and deception in insurance marketing and sales.‘0 Insur-
                       ance regulators monitor insurance sellers through consumer complaints,
                       review of marketing materials, and market conduct examinations. A
                       market conduct examination is an evaluation of an insurer and its repre-
                       sentatives’ dealings with policyholders and claimants, such as adver-
                       tising and claims handling. If an insurance seller engages in fraudulent,
                       abusive, or deceptive practices, state regulators may take action to sus-
                       pend or revoke the seller’s license.

                       State regulators also review premium rates to ensure that premiums
                       paid by policyholders are adequate, not excessive, and not unfairly dis-
                       criminatory. Some states require prior approval for premium rates,
                       while other states require only that rate plans be filed with the insur-
                       ance department before the ratings become effective. Premiums charged
                       for an insurance policy are set by the insurer underwriting the product
                       and not by the seller of the policy. Sales expenses, including commis-
                       sions paid by the insurer to the seller, represent one component of the
                       premium price.




                       g16USC. sections1011-1016.
                        l”Long-TermCareInsurance:StateRegulatoryRequirementsProvide InconsistentConsumerF’rotec-
                       -tion (GA(s7HRD89-67,Apr. 24,1989).


                       Page 13                                          GAO/GGDBO-113    Banks Selling Insurance
                        chapter 1
                        Introduction




                        The Chairman of the House Committee on Small Business requested that
Objectives, Scope,and   we evaluate the potential effects of banks selling insurance on con-
Methodology             sumers, other insurance sellers, and the safety and soundness of the
                        banking system. In this report, we discuss bank sales of insurance prod-
                        ucts underwritten by a nonaffiliated insurance company, which bears
                        all risk of loss due to claims of policyholders. The Chairman also asked
                        that we specifically address the practice of cross-selling and potential
                        for coercive tie-in sales of insurance and other consumer abuses and
                        provide insight into what regulatory controls are needed to protect
                        consumers.

                        To identify the advantages and disadvantages of banks selling insur-
                         ance, we interviewed over 60 insurance and banking industry organiza-
                        tions, their regulators, consumer advocates, and academic experts. Our
                        judgmental sample of interviews included banking and insurance
                         industry representatives and regulators likely to be involved with banks
                         already selling insurance. Appendix I lists the organizations and individ-
                        uals that we interviewed. We also reviewed legal opinions, congressional
                        hearing records, and publications prepared by banking institutions and
                        insurance sellers.

                        In an effort to assess the extent of abusive tie-ins and potential for
                        abuse if bank sales of insurance are expanded, we examined banks’
                        experience with credit insurance, since most banks already can sell this
                        type of insurance. Specifically, we reviewed two studies most often cited
                        by both opponents and proponents of banks selling insurance. Based on
                        consumer surveys sponsored by the Federal Reserve, both studies pro-
                        vide information on the frequency of borrower purchases of credit
                        insurance, borrower perceptions about lender recommendations to
                        purchase credit insurance, and overall borrower attitudes toward credit
                        insurance.11

                        To analyze tie-ins in bank sales of other types of insurance, we inter-
                        viewed insurance sellers, banks selling insurance, and banking and
                        insurance regulators in two states where banks already sell insurance-
                        Minnesota and North Carolina. In Minnesota, banks have sold insurance
                        for many years, while North Carolina banks recently started to sell
                        insurance. We spoke with banking and insurance regulators in seven

                        “Robert A. Eisenbeisand Paul R. Schweitzer,“Tie-ins Betweenthe Granting of Credit and Saleof
                        Insuranceby Bank Holding Companiesand Other Lenders,”Staff Study 101,Boardof Governorsof
                        the FederalReserveSvstem(Feb. 19791and Anthony W. Cvrnak and GlennB. Canner.“Consumer
                        Experiencewith Credit I~&ance,” FeieraI ReserveBankof SanFranciscoEconomickeview
                        (SummerIOSS), pp. 6-20.



                        Page 14                                             GAO/GGD-t-M-113   Banka Selljng Inmwance
additional states-California,  Iowa, Massachusetts, Nebraska, South
Dakota, Wisconsin, and Wyoming-where        banks have limited powers to
sell insurance. We interviewed representatives of 13 bank holding com-
panies that have grandfathered powers to sell insurance.12

We also interviewed officials of the three principal federal bank regula-
tory agencies-Federal Reserve, FDIC, and occ. We spoke with officials
of the National Association of Insurance Commissioners (NAIC). NAIC con-
sists of the heads of the insurance departments of the 60 states, the Dis-
trict of Columbia, and 4 U.S. territories. NAIC’S basic purpose is to
encourage uniformity and cooperation among the states as they individ-
ually regulate the insurance industry.

We did our work between December 1988 and January 1990 in accor-
dance with generally accepted government auditing standards. At the
request of the Committee, we did not obtain written comments on this
report. We discussed the contents of our report with officials at the fed-
eral banking agencies- Federal Reserve, FIX, and ooc-and have incor-
porated their comments where appropriate. The officials generally
agreed with the conclusions in our report.




12Fourteenbank holding companiesare allowedto continueselling insuranceunder the grandfather
provisions of the Garn-St.GermainAct of 1982.



Page 16                                             GAO/GGIM@113     Banka selling   Incuran=
Chapter 2

Chsumers May Benefit but May Also Need *
Protection From Potential Abuses

                             In the debate over expanding bank powers to sell insurance, proponents
                             and opponents disagree on how bank sales of insurance would affect
                             consumers. Banks and consumer groups assert that banks will lower the
                             costs of selling insurance, thereby reducing overall insurance costs, and
                             will expand service to consumers. However, the insurance industry
                             argues that banks would charge higher premiums and reduce service.
                             Moreover, critics of bank sales of insurance contend that banks would
                             take advantage of their position as lenders to coerce consumers to buy
                             insurance.


                             Banks could possibly reduce the cost of insurance if they can lower the
Bank Entry May Have          costs of marketing and selling policies to customers. However, sales
Little Effect on             expenses represent only one component of insurance costs, and any
Insurance Premiums           reduction in the cost of selling insurance may not significantly affect
                             premiums paid by policyholders. Also, state regulatory oversight of
                             insurance premiums may limit, in the short run, any seller’s ability to
                             affect premium rates. However, expanded bank sales of insurance may
                             increase convenience for consumers, thereby reducing consumers’ trans-
                             action costs.


Economiesof Scope            Banks can reduce production costs if they can achieve economies of
Present Potential for Cost   scope in selling insurance products. An economy of scope refers to the
                             ability to reduce costs through the joint production or marketing of two
Reduction                    or more products or services. By offering a wider variety of products
                             and services, a company may be able to sell a greater volume overall and
                             lower the overhead costs per unit sold. Cross-selling, the concurrent
                             marketing of several distinct services or products through one seller, is
                             one way to achieve economies of scope. If bank sales of insurance are
                             expanded, banks could use their existing offices and staff to offer more
                             products and services to current customers.

                             Cross-selling is a common practice in both the banking and insurance
                             industries. In addition to traditional deposit accounts and loans, banks
                             offer other banking products and services, such as credit cards, trust
                             services, credit insurance, and financial planning advice to their cus-
                             tomers, Insurance companies routinely offer several types of insurance
                             to policyholders. In fact, an insurer may provide discounts to policy-
                             holders purchasing several types of insurance or offer some types of
                             coverage only to existing policyholders.




                             Page 10                                  GAO/GGD-W113   Banka f3e.m   Inemce
                            Chapter 2
                            Consumers May BenePit but May Also Need
                            Protection From Potential Abuses




                            While expanded bank sales of insurance present the potential for banks
                            to achieve economies of scope, it is not possible, we believe, to anticipate
                            the extent to which banks could lower the costs of selling insurance.
                            Available statistical studies of banking costs, in general, are based on
                            small banks dealing with existing products and geographic restrictions
                            and do not address bank expansion into insurance sales. Therefore,
                            these cost studies cannot be used to project whether bank sales of insur-
                            ance will lower the costs of selling insurance.


Sales Expenses Are a        Any reduction in sales costs is unlikely to substantially lower insurance
Fraction of Premiums Paid   premiums paid by consumers. Sales expenses represent only one compo-
                            nent of an insurer’s cost, while losses and expenses for underwriting
by Policy holders           and claims handling represent the bulk of insurance costs. According to
                            A.M. Best Company, commissions represented nearly 12 percent of
                            property/casualty premiums in 1988 and almost 10 percent of life/
                            health premiums. As a result, a l-percent reduction in sales commissions
                            would translate into a premium reduction of, at most, one-tenth of 1
                            percent.


State Regulation Limits     State regulatory oversight of insurance premiums may limit, in the short
Seller’s Effect on          run, any seller’s ability to affect premium rates. First, premiums
                            charged for an insurance policy are set by the insurer underwriting the
Insurance Premiums          product and not by the seller of the policy. Then, regulators in most
                            states oversee premium rates through rate plans to be filed with the
                            insurance department or by requiring prior approval for premium rates.
                            Since premiums are set by the insurer with regulatory oversight, a bank
                            selling insurance could not unilaterally change premiums charged to
                            consumers.

                            In addition, almost all states prevent insurance sellers from reducing
                            premiums paid by consumers through anti-rebating laws. The ban on
                            rebates prevents an insurance seller from paying a portion of the pre-
                            miums or sharing its commission with the customer. As a result, banks
                            could not immediately reduce premiums paid by consumers to reflect
                            any cost savings. Instead, the insurer marketing its products through a
                            bank would have to revise its rates subject to regulatory oversight. If
                            banks could reduce sales costs, to compete on the basis of price, insurers
                            distributing products through banks would request lower premiums to
                            pass cost savings along to customers.




                            Page 17                                    GAO/GGD90-113   Banks Selling Insurance
                               chapter 2
                               Cknunnnera May Benefit but May Also Need
                               Protection From Potential Abuses




Increased Convenience          Banks could reduce an individual’s overall costs of purchasing insurance
May ReduceConsumers’           by reducing the consumer’s transaction costs. The total price of an
                               insurance product is not only the premium paid to the insurer but also
Transaction Costs              the consumer’s time and effort to obtain information about insurance
                               products and complete the transaction. With expanded insurance sales
                               authority, a bank could provide “one-stop shopping” for both banking
                               and insurance needs. The Consumer Federation of America and the
                               National Insurance Consumer Organization assert that the increased
                               convenience for consumers would be a primary advantage of banks
                               selling insurance.

                               With one-stop shopping, a bank could assist consumers in choosing from
                               a range of banking and insurance products. Both traditional bank prod-
                               ucts and life insurance products are important elements of a consumer’s
                               financial plans. Increasingly, banks and insurance companies offer sim-
                               ilar products. Banks provide financial products, including letters of
                               credit, municipal bond insurance or guarantees, and annuities, that offer
                               insurance-like protection. Life insurers sell policies that offer an invest-
                               ment or savings function.


                               As we reported in January 1989, expanded powers for banks would
Bank Salesof                   increase the diversity of banking, thus increasing the potential for con-
Insurance Increase             flicts of interest and their abuse.’ However, these conflict situations and
Potential   for   Abuse   of   potential abuses exist for all insurance sellers. For example, a bank or
                               any other insurance seller has a “salesman’s stake” in promoting prod-
Consumers                      ucts and services while at the same time purporting to provide objective
                               advice. However, unlike other insurance sellers, a bank or any lender
                               also could use its position as a source of credit to coerce borrowers to
                               buy insurance through the bank as a condition to receive loans.


Conflicts of Interest Are      A conflict of interest is a situation in which a person or business serving
Not Unique to Banks            more than one interest can benefit by favoring one interest at the
                               expense of others. Conflicts of interest occur during the normal course
                               of many business operations, including banking and insurance. An abuse
                               of a conflict of interest occurs if the bank or its representative takes
                               advantage of the conflict situation in violation of customary industry
                               practices, fiduciary responsibilities, or laws and regulations.


                               ‘Banking: Conflicts of Interest Abusesin Chunercial BankingInstitutions (GAO/GGD-89-35,Jan.
                               27,1989).



                               Page 18                                             GAO/GGD9@113      Banks Selling Insurance
                            chapter 2
                            Ckmmune~ May Benefit but May Also Need
                            Protection From Potential Abuse19




                            Like other insurance sellers, a bank and its employees routinely
                            encounter situations in which their interests would be better served by
                            actions not in the best interest of the customer. This may occur when
                            the seller has a “salesman’s stake” in promoting products or services
                            while at the same time purporting to provide disinterested investment
                            advice. For example, any insurance seller, including a bank or its
                            employees, could abuse consumers by encouraging purchases of high-
                            profit insurance products while supposedly providing objective advice.
                            To increase income, the seller may recommend those products that yield
                            the highest commissions rather than the best coverage or cheapest pre-
                            miums for consumers.

                            In addition, a bank could abuse a customer’s interest by using confiden-
                            tial customer information in a manner not agreed to by customers. For
                            example, the bank could use lists of prospective borrowers to market
                            insurance products during the credit process or provide information to
                            an insurance seller contrary to customers’ privacy interests. Also, a
                            bank could give preferred treatment to certain customers, such as
                            offering lower interest rates for borrowers who purchase insurance.


Tie-Ins Between Insurance   To pass along cost savings achieved through economies of scope, a bank
and Credit Present          may “tie” two or more products and services into a package. Such tie-ins
                            can benefit consumers as long as they have the option not to purchase
Opportunity for Abuse       the additional goods. An involuntary or coercing tie-in occurs when, in
                            order to purchase the desired product or service, a customer must
                            purchase a second product or service. Involuntary tie-ins may be illegal
                            under federal antitrust laws, and banking laws explicitly prohibit tying
                            credit to any other banking product or service. However, even where the
                            bank does not intend a tie-in, a borrower may purchase an additional
                            product such as insurance from the bank in hopes of improving the
                            chance of receiving a loan. Such implied or perceived tie-ins may result
                            if banks cross-market insurance to borrowers or, in particular, if the
                            bank loan officer sells insurance.

                            Some types of insurance would be particularly susceptible to credit tie-
                            ins. Foremost, credit insurance may be tied to credit transactions, since
                            only consumers who owe on loans or credit accounts purchase credit
                            insurance. According to a Congressional Research Service report, a con-
                            sumer is most likely to purchase credit insurance when a loan is




                            Page 19                                  GAO/GGD-90-113   Banka Selling Insurance
                           Chapter 2
                           Consumers May Benefit but May Also Need
                           Protection kom Potential Abuses




                           originated, and as a result, the lender is well placed to offer the insur-
                           ancea2In fact, one study sponsored by the Federal Reserve found 90 per-
                           cent of credit insurance in 1985 was sold by lenders.

                           Property insurance also may be tied to credit when a loan is secured by
                           collateral. For example, any lender that also sells insurance could offer
                           auto insurance policies to borrowers with car loans or homeowner insur-
                           ance to mortgage holders. However, the opportunity for a bank to coerce
                           borrowers into purchasing insurance is limited not only by the existence
                           of other sources of insurance but also by other sources of credit. In
                           1987, about 40 percent of auto loans and less than 40 percent of home
                           mortgages originated with commercial banks. Many other lenders, in
                           fact, also sell insurance, including automobile finance companies and
                           mortgage companies.


                           While insurance opponents of bank sales of insurance maintain that
Limited Evidence Does      coercive tie-ins are widespread, little evidence is available to substan-
Not Indicate               tiate claims that banks coerce customers to buy insurance. Although
Widespread Abuse of        credit insurance is most susceptible to tie-ins, studies of credit insurance
                           sales have found consumers’ favorable perceptions did not indicate
Credit Tie-Ins             problems with widespread abuse. As for banks selling other forms of
                           insurance, state regulators in our interview sample said that, while
                           instances of abuse may occur, coercive tie-ins are not widespread. Given
                           banks’ limited experience with credit insurance and the few banks that
                           sell other insurance, we cannot generalize about the extent of abuses if
                           bank sales of insurance are expanded.


Little Evidence That       Opponents of banks selling insurance claim lenders dominate credit
Coercion Is a Widespread   insurance sales through overt or implied tie-ins between insurance and
                           credit approval. To support their point, independent agents and their
Problem in Credit          trade associations cite the fact that two-thirds of borrowers purchase
Insurance                  credit insurance from their lender. In 1985,67 percent of bank bor-
                           rowers also bought credit insurance through their banks. Moreover,
                           these opponents point out, about 20 percent of borrowers with credit




                           21nsuranceSales:The Effects of PossibleBank Diversification on the InsuranceIndustry, Congres-
                           sional ResearchService(Nov. 30, 1989).



                           Page 20                                              GAO/GGD!W113      Banks Selling Insurance
                             Chapter 2
                             Conmmers May Benefit but May Also Need
                             Protection From Potential Abuses




                             insurance in 1985 said their lender strongly recommended or required
                             the purchase of credit insurance.3

                             However, the fact that borrowers purchased credit insurance from their
                             lender does not necessarily mean that borrowers were coerced to buy
                             insurance from the bank. A Federal Reserve-sponsored study found
                             that, excluding borrowers required to purchase coverage, less than 4
                             percent of credit insurance buyers in 1985 thought the loan approval
                             process was affected by whether they bought credit insurance. Bankers
                             suggested that borrowers purchase credit insurance from lenders,
                             because this insurance is convenient and relatively inexpensive when
                             compared to the loan. Indeed, 90 percent of those borrowers who pur-
                             chased credit insurance in 1985 responded that credit insurance was a
                             good product. Further, more than 90 percent of those who purchased
                             credit insurance indicated that they would purchase similar coverage in
                             the future. Even among those borrowers who did not purchase coverage,
                             more than half thought credit insurance was a good idea.


Little Indication of Abuse   Independent agents and some state insurance regulators have suggested
in States With Expanded      that if banks were granted broad power to sell insurance, banks would
                             coerce their customers into buying insurance. However, 14 of the 17
Bank Sales of Insurance      state banking and insurance regulators that we interviewed do not
                             believe that banks routinely coerce borrowers to buy credit insurance.
                             Our discussions disclosed only limited anecdotal evidence of such coer-
                             cive practices in states where banks already sell insurance.

                             Our discussions with regulators, consumer advocates, insurance agents
                             and bankers in Minnesota and North Carolina did not indicate wide-
                             spread coercion by banks selling insurance. In Minnesota, where state
                             banks have sold insurance for over 90 years, the state’s Department of
                             Commerce, which regulates both banking and insurance, has received
                             few complaints about coercive tie-ins by banks. Officials said that the
                             one case involving numerous consumer complaints about coercive credit
                             tie-ins did not involve a banking institution, In North Carolina, where
                             banks recently began selling insurance, the Attorney General’s office
                             and state bank regulators were unaware of any widespread coercion
                             problems in North Carolina banks.


                             31nmany states,banksmay legally require the purchaseof credit insuranceas a condition to receive
                             credit. They may not, however,require that the insurancebe purchasedfrom a particular source.
                             Under title I of the Truth in LendingAct (16 U.S.C.1606B),the costof credit insurancemust be
                             addedinto the loan’sannual percentagerate.



                             Page 21                                               GAO/GGD-90-113    Banka gelling   Insurance
                                                                                                        I
                        Chapter 2
                        Coarnmers May Benefit but May Also Need
                        ProtectIon From Potential Abuses




                        However, we found instances of a situation which could possibly
                        represent coercive tie-ins in insurance products. According to several
                        persons in our interview sample, some banks have refused to accept
                        binders-legally   binding promises to provide insurance coverage-from
                        other agents and instead offered to sell their own policies to borrowers
                        during loan closing. A bank’s ability to reject a binder in lieu of an actual
                        policy during closing varies according to state laws and regulations. For
                        example, a bank in North Carolina can refuse to accept binders, while in
                        New York, this practice is prohibited.

                        The difficulty of coercing tie-ins between insurance and banking prod-
                        ucts is illustrated by the low market share held by bank holding compa-
                        nies that sell general insurance. Of the 10 bank holding companies
                        selling insurance in our sample that responded, most estimated that few
                        of their banking customers also bought insurance through the bank or
                        its affiliate. Estimates ranged from less than 1 percent to less than 15
                        percent. These percentages of bank customers buying general insurance
                        are low compared to the 67 percent of bank borrowers buying credit
                        insurance.

                        The limited experience of national banks and state-chartered banks that
                        sell insurance may not be representative of the extent of abuses that
                        would occur if bank sales of insurance are expanded. Currently, bank
                        holding companies, national banks, and state-chartered banks in 10
                        states can sell insurance in small towns with populations less than
                        5,000. Since a bank serving a small town may exercise a near monopoly
                        in providing credit in the community, the small town exemption allows
                        banks with the most opportunities for tie-in abuse to sell insurance.
                        None of the regulators in our sample expressed concern about possible
                        abuses by small town banks. In large markets where consumers can
                        choose from multiple sources of credit and, therefore, are less suscep-
                        tible to coercive tie-ins, most banks are now restricted from selling
                        insurance.


                        As we reported in our 1989 report on conflicts of interest in banks, three
Controls Over Abusive   factors work to control conflict situations and limit their abuse: competi-
Practices of Banks      tion, banking internal controls, and regulatory oversight. While this
Selling Insurance       combination can serve to limit abuses, these factors cannot prevent all
                        abuses. However, after some point, additional controls and oversight
           Y            may hamper banking operations and diminish potential benefits for
                        consumers.



                        Page 22                                    GAO/GGI.MO-113   Banlra Selling Insurance
                            Chapter 2
                            Ckmtmmers May Benefit but May Also Need
                            Protectlon From Potential Abunes




Competition                 Competition between financial service providers serves to deter conflict
                            of interest abuses. To maintain business relationships and profitability,
                            banks try to avoid adverse publicity and poor customer relations that
                            could result from abuses. Competition serves as a barrier as long as cus-
                            tomers are aware when they are adversely affected and can easily take
                            their business elsewhere. As pointed out earlier in this chapter, banks
                            are not the dominant source for consumer credit. Faced with unfair
                            insurance sales practices by banks, consumers could find another credit
                            source. Competition between insurance sellers will be discussed in
                            chapter 3.

                            When competition is lacking or when it is difficult or expensive for cus-
                            tomers to obtain necessary information, they may not be able to take
                            their business elsewhere. According to the National Federation of Inde-
                            pendent Businesses, banks are the primary source of credit for small
                            businesses, and a small business may depend upon one bank for all of its
                            credit needs. Generally, a small commercial borrower cannot quickly
                            change lenders because of the lag time in applying for loans and under-
                            going an evaluation of its creditworthiness. In the short run, a small
                            commercial borrower could feel pressured to purchase insurance prod-
                            ucts from the bank if the borrower has no other immediate source of
                            credit. However, in the long run, borrowers can develop relationships
                            with other commercial banks if they find their current banks’ practices
                            unreasonable.


Banking Internal Controls   Banks use internal control systems to manage conflict situations and
                            limit abuses. A bank may use “Chinese Walls” to limit the passage of
                            sensitive or confidential information between units or even to physically
                            separate operations. The Chinese Wall concept could be used to prevent
                            information about credit applicants from being used to sell insurance or
                            to separate the credit and insurance departments. A bank also may have
                            a code of ethics providing guidance to employees in resolving conflicts
                            of interest. For example, a bank may prohibit a loan officer from dis-
                            cussing insurance with a prospective borrower until the loan decision is
                            final or may require a loan officer to disclose that insurance purchases
                            are voluntary.


Regulatory Oversight        Federal and state banking laws, regulations, and supervision play an
              ”             important role in protecting consumers from bank abuses. Federal anti-
                            trust laws prohibit certain involuntary tie-ins, and federal banking laws
                            specifically prohibit tying bank credit to other banking products and


                            Page 23                                   GAO/GGIMO-113   Banks Selling Insurance
                                                                                                        ,
                          Chapter 2
                          Chwume~    May Benefit but May Aleo Need
                          Protection Prom Potential Abwes




                          services. In addition, the Federal Reserve Board considers the potential
                          for perceived tie-ins in allowing a bank holding company to sell insur-
                          ance, In approval orders to individual banking institutions, the Federal
                          Reserve Board may specify controls necessary to limit potential abuses.
                          CKXlikewise considers the potential for tie-ins by national banks selling
                          insurance and may impose additional controls.

                          Some states where banks have gained power to sell insurance have addi-
                          tional laws and regulations that serve to protect consumers. For
                          example, during every transaction with customers of related companies,
                          Wisconsin requires banks to disclose the relationship and to provide
                          instructions for the consumer to report coercive sales pressure to com-
                          pany management or the Commissioner of Banking. To prevent the
                          “salesman’s stake,” Wisconsin prohibits bank employees who sell insur-
                          ance on a commission basis from making credit decisions,

                          Banks selling insurance are subject to state insurance regulation as well.
                          A bank or its employees may be required to obtain an agent license and
                          are subject to the same state insurance regulations as other insurance
                          sellers. While legal provisions vary from state to state, unfair trade
                          practice laws and regulations generally prohibit coercive tie-in sales for
                          borrowers, as well as misrepresentation and false advertising.


Additional Regulatory     While existing regulatory controls prohibit coercive tie-ins by a bank
Controls May Warrant       selling insurance, it is reasonable to expect that the greater the degree of
                          joint marketing, the more likely consumers are to believe credit is tied to
Consideration              insurance. Thus, consumers may need additional protection from per-
                           ceived tie-ins.

                          While a prohibition on joint marketing may prevent even the perception
                          of tie-ins between credit and insurance, such a measure also would fore-
                          stall consumers benefitting from expanded bank sales of insurance. As
                          banks enter joint ventures with insurance sellers or gain powers to sell
                          insurance directly to customers, other measures for consideration
                          include mandatory disclosure and marketing separation. At the least,
                          banks could be required to disclose that the purchase of insurance is
                          voluntary and does not affect the granting of credit. Also, banking oper-
                          ations, particularly the credit process, may be insulated from insurance
                          marketing by

                        . restricting a bank from offering insurance to a borrower until the loan
                          decision is final,


                          Page 24                                    GAO/GGD90-113   Banks Selling Insurance
                  Chapter 2
                  C?.mmmere May Benefit but May Also Need
                  Protection From Potential Abwea




                . prohibiting loan officers from offering insurance to a borrower or
                  earning commission on insurance sales, and
                . physically separating insurance marketing staff and office space from
                  other banking operations.

                  Some of these measures, however, may reduce or eliminate the cost sav-
                  ings that might otherwise flow from the joint marketing of banking and
                  insurance services.


                  Expanded bank sales of insurance could potentially benefit consumers
Conclusions       through reduced insurance costs and increased convenience. However,
                  we do not believe it is possible to predict the extent to which potential
                  benefits may be realized.

                  Similarly, expanded bank powers to sell insurance may increase oppor-
                  tunities for banks to coerce consumers to buy insurance as a condition to
                  receive credit. However, while instances of abuse may occur, coercive
                  tie-ins have not been a widespread problem in banks selling credit insur-
                  ance or in those banks already allowed to sell other forms of insurance.
                  These limited experiences cannot be generalized to predict the extent of
                  future abuses. While coercive tie-ins are already illegal, additional mea-
                  sures could help to protect consumers.


                  While consumers could potentially benefit from bank sales of insurance,
Matters for       it is not possible to know in advance the potential for future abuses in
Congressional     tying the granting of credit to the purchase of insurance. If more banks
Consideration     gain powers to sell insurance, Congress may wish to consider the need
                  for additional regulatory measures, including increased disclosure and
                  separation of insurance marketing from the credit process, to protect
                  consumers from possible coercive tie-in problems.




                  Page 25                                   GAO/GGD9@113   Banks Selling Iusurance
IncreasedCompetition for Other Sellersbut No
Risk to Banldng Safety and Soundness

                 Opponents and proponents disagree on how expanded bank sales of
                 insurance would affect insurance sellers. Insurance agents and their
                 trade associations suggest that banks would reduce competition in the
                 insurance market through unfair competition. In particular, agents claim
                 that banks would give preferential treatment to their affiliates and deny
                 credit to competitors. Banks and many consumer groups assert that
                 bank sales of insurance would increase competition.

                 Both sides in the debate over expanded bank powers also disagree on
                 how banks selling insurance would affect the safety and soundness of
                 the banking system. On one side, opponents claim insurance sales would
                 increase the riskiness of banking and endanger the safety and soundness
                 of the banking system. On the other side, banks and their supporters
                 contend that insurance sales would enhance banking profitability,
                 thereby protecting banking safety and soundness.


                 Uniform powers for banks to sell insurance would create a more “level
Competitive      playing field” among banking institutions, nonbank depository institu-
Consequencesof   tions, and other nonbank lenders in selling insurance. As discussed in
Banks Selling    chapter 1, current insurance sales authority for state-chartered banks
                 varies from state to state. Even among national banks, only those banks
Insurance        operating in towns with populations less than 6,000 may sell insurance.
                 In contrast, other depository institutions, including savings and loan
                 associations, credit unions, and mutual savings banks, can offer insur-
                 ance to customers. Moreover, other lenders, such as finance companies,
                 can sell insurance to their borrowers. Finally, other nonbank financial
                 services firms, including insurance companies, can offer banking prod-
                 ucts, such as savings accounts and loans. This checkerboard of powers
                 does not allow otherwise similar institutions to compete on an equal
                 basis.

                 Within the insurance market, the effect of banks selling insurance on
                 product pricing and availability is uncertain. As discussed in chapter 2,
                 banks could potentially reduce the costs of selling insurance, though any
                 cost saving would not immediately result in lower insurance premiums
                 for consumers. While bank sales of insurance would increase conve-
                 nience for consumers, bank entry, as an agent, to the insurance market
                 would not affect the amount of insurance available. The amount of
                 insurance available depends on the underwriting capacity of insurance
                 companies.




                 Page 26                                  GAO/GGIMJ@113   Banks Selling Insurance
                        Chspter 3
                        Ineroa6ed competition for Other Sellers but
                        No Risk to Bankhg Safety and Soundnese




                        Expanded bank sales of insurance could enhance price competition
                        between insurance underwriters. Increasing price competition between
                        insurers has forced many insurance companies to seek lower sales costs
                        as well as to improve marketing for their products, To the extent that
                        banks could sell insurance more cheaply, insurers could pass reduced
                        production costs along to consumers as lower insurance premiums.
                        Insurers also would benefit from the flexibility of another channel for
                        reaching consumers. Many insurers already buy customer lists from
                        banks to take advantage of banking’s customer base. According to a
                         1988 Louis Harris survey done for Coopers and Lybrand, 34 percent of
                        life insurers and 28 percent of property/casualty insurers surveyed use
                        banks to market or sell their products. Moreover, four out of five
                        insurers surveyed’plan to increase their distribution through banks over
                        the next 6 years.

                        Current insurance sellers-the most vocal opponents of banks selling
                        insurance -are likely to lose market share and some of their profits if
                        bank sales of insurance expand. In particular, independent insurance
                        agents, whose commissions often result in higher costs than other
                        delivery systems, may lose from banks’ entry. Currently, banks may
                        lease space in their offices or sell lists of bank customers to insurance
                        sellers. However, if banks gain powers to sell insurance, agents not affil-
                        iated with banks may lose their bank office space and access to bank
                        customer information. Not surprisingly, independent agents opposing
                        expanded bank powers suggest that banks have unfair competitive
                        advantages in selling insurance.


                        Banks have potential advantages that may enable them to compete suc-
Potential Competitive   cessfully with other insurance sellers. As discussed in chapter 2, banks
Advantages for Banks    may be able to sell insurance more cheaply because of economies of
Selling Insurance       scope achieved through joint marketing. These efficiencies;,however, are
                        likely to be reduced if additional steps are taken to preclude coercive tie-
                        in sales. A bank may market insurance products to current bank cus-
                        tomers through its network of branch offices as well as through mailings
                        to credit card holders, depositors, and borrowers. Besides providing
                        space within its offices and customer lists, a bank could also share over-
                        head functions, such as check clearing, accounting, and other adminis-
                        trative functions, with its insurance operations. However, these
                        advantages are not unique to banks, and any large, diversified firm may
                        have competitive advantages. Moreover, an advantage does not necessa-
                        rily translate into unfair competition.



                        Page 27                                       GAO/GGLMO-113   Banka Selling Insurance
                     Chapter 3
                     hwea8ed C!ampetlUon for Other Bellem but
                     No Wak to Banking Safety and Soundnw




Physical Access to   According to Standard and Poor’s Insurance Rating Service, the branch
Customers            networks used by banks represent a powerful distribution advantage.
                     Since depositors visit branches frequently, the bank has physical access
                     and contact to market more products to existing customers. Similarly,
                     leasing arrangements and joint ventures by insurers and agents with
                     banks attempt to capitalize on a bank’s position as a point of sale.
                     According to the Minnesota Insurance Agents Association, half of its
                     members work for agencies affiliated with banks.

                     Our sample of bankers and state regulators indicated that banks gener-
                     ally choose to co-locate insurance operations within bank offices. Of the
                     11 sample banks selling insurance, only one did not co-locate its insur-
                     ance and banking activities. Five sold insurance through bank offices,
                     and the remaining five sold insurance through bank offices as well as in
                     other locations. Of the six states that commented on the location of bank
                     insurance operations, regulators in all six states said banks are not
                     restricted from selling insurance within bank branches.


Accessto Customer    Banks, like other lenders and financial advisors, possess highly sensitive
Information          and confidential information regarding customer finances. Opponents of
                     expanded bank sales of insurance assert that banks’ access to credit
                     information presents an unfair advantage. Through its lending opera-
                     tions, a bank could have information that a consumer is purchasing
                     property that requires insurance, such as an automobile or a house. As a
                     result, a bank could offer insurance to the borrower while other sellers
                     are not aware of the opportunity to compete for the borrower’s business.
                     However, the majority of automobile and home loans originate with
                     lenders other than banks. In many cases, these other lenders already
                     have powers to sell insurance to borrowers. Therefore, access to credit
                     information in itself is not necessarily an unfair advantage.

                     Another concern of competing insurance sellers is that banks could pro-
                     vide customer information to affiliated insurance agencies at no charge.
                     Currently, other insurance sellers are able to purchase bank customer
                     lists. The magnitude of any advantage a bank-affiliated agent may gain
                     from access to customer information is unclear. While independent
                     agents in North Carolina said that access to customer records is useful in
                     selling insurance, bank-affiliated agents in Minnesota and representa-
                     tives of several insurers said that only customer names and addresses
                     were helpful.




                     Page 28                                    GAO/GGLMO-113   Banks SeUng Insurance
                            Chapter 3
                            Increaned Competition   for Other Sellers but
                            No Rialc to F5ankhg Saiety and Soundnwse




Shared Overhead Costs       A bank could also share overhead and processing functions with its
                            insurance operation. As a result of economies of scope and scale, the
                            bank-affiliated insurance activities may have lower production costs
                            than if the insurance agency operated as a separate entity. These advan-
                            tages, however, are not unique and may exist for all large, diversified
                            financial service providers.

                            For example, in recent years, insurance companies have purchased inde-
                            pendent agencies or agency computer systems serving to consolidate
                            administrative functions and reduce operating costs. Independent agen-
                            cies are joining consortiums and developing information systems to
                            reduce processing costs and achieve economies of scale. Small firms that
                            are unable to attain economies possible through large-scale operations
                            may be unable to offer prices competitive with larger institutions,
                        *   including banks.


                            If the number of banks selling insurance is expanded, banks could abuse
Banks Could Abuse           their position as a source of credit to compete unfairly against other
Credit to Compete           sellers. A bank could give preferential treatment to an affiliated agency
Unfairly Against            or deny credit to competing insurance sellers. We do not know the extent
                            to which banks might use credit to influence their competitive position.
Other Sellers
                        9   A bank could subsidize an affiliated insurance agency by providing
                            loans at favorable, nonmarket lending rates or without applying appro-
                            priate credit standards. Opponents of expanded bank sales of insurance
                            argue that, moreover, a bank has access to low-cost insured deposits,
                            which it could use to fund its insurance agency. However, any large,
                            diversified financial company, including large banks, bank holding com-
                            panies, and national insurance agencies, may be able to borrow funds
                            more cheaply than a small independent agent or specialty insurance
                            agency. Lenders may provide lower rates to diversified companies
                            because they believe such institutions are less risky than the less diver-
                            sified insurance agencies.

                            Absent legal restrictions,’ access to low-cost funding, including insured
                            deposits, could provide banks selling insurance with a cost advantage
                            over other sellers. To the extent that a bank could pass along the cost
                            differential in the form of lower premiums, the bank could take over a
                            share of the market from independent insurance sellers. However, two

                            ‘Controls, including regulatory oversight,that serveto protect againstcredit abusesare discussed
                            below.



                            Page 29                                                GAO/GGDBO-113Banks Selling Insurance
                     chapter 3
                     Inwaaed   cOmpetith    for Other Sellers but
                     No Risk to Banking Safety and Soundneea




                     factors serve to limit any advantages of low-cost funding for bank insur-
                     ance operations. First, a bank might use low-cost funding to subsidize its
                     insurance sales activity as a short-term strategy to establish the bank’s
                     presence in the insurance market. In the long run, however, a bank
                     would probably direct its loanable funds to the most profitable
                     activities.

                     Second, as previously indicated, any advantage from low-cost funding
                     would not necessarily affect premiums paid by consumers, since an
                     insurance seller cannot unilaterally change premiums charged to cus-
                     tomers. Even if banks could sell insurance more cheaply, lower pre-
                     miums would result only if insurers are willing to pass cost savings
                     along to consumers and state regulators permit these price changes.

                     Independent agents assert that a bankselling insurance would deny
                     credit or charge an excessive rate of interest on loans to competing
                     insurance sellers. The Congressional Research Service has pointed out
                     the possibility that if every bank in a town sells insurance or is affili-
                     ated with an insurance agency, an independent agency may not be able
                     to get credit in that town2 If competing sellers are unable to get credit
                     and necessary liquidity, independent agencies not subsidized by a bank
                     could be eliminated from the market. As a result, insurance markets in
                     areas with restricted access to credit might be monopolized by banks
                     and their insurance affiliates. CurrentQ, banks in small towns may sell
                     insurance, while banks in larger, more competitive markets cannot.


                     As discussed in chapter 2, competition, banking internal controls, and
Controls Can Limit   regulatory oversight serve to control credit abuses. In a competitive
Abuses and Ensure    market, each lender must make loans at competitive interest rates in
Competition          order to retain business. Thus, a bank subsidizing its affiliates, in the
                     long run, could not offer competitive rates on loans. While one bank
                     might deny loans to an insurance competitor or charge higher interest,
                     banks in unison are unlikely to do so; such action could be challenged
                     under federal antitrust laws. However, where credit abuses are likely or
                     competition is lacking, additional regulatory controls may be necessary
                     to ensure fair competition.




                     %surance Sales:The Effects of PossibleBank Diversification on the InsuranceIndustry, Cmgres-
                     sion
                      JR eswrc rvice( ov.


                     Page 30                                             GAO/GGD-Q&113     Banks Selling Insurance
                            chapt8r 3
                            Iucreaeed CornpetItion for Other Bellera but
                            No Reek to Banking Safety and Soundness




Banking Internal Controls   Banking internal control systems serve to limit credit abuses and ensure
                            that a bank remains competitive. As discussed in our report on banking
                            conflict of interest abuses, “Chinese Walls” or firewalls are an important
                            component of bank controls. These walls are intended to limit the pas-
                            sage of sensitive, critical, or confidential information within the bank
                            and between the bank and affiliates, as well as to limit inappropriate
                            transactions between units.

                            Without an adequate wall, unauthorized or unnecessary possession of
                            information could unfairly give advantage to the bank or its affiliate at
                            the expense of other insurance sellers. For example, information about
                            borrowers could be used by a bank-affiliated insurance agency to
                            market insurance products before the credit process is complete. Of the
                             11 banks in our sample that responded, 7 banks indicated that they
                            restrict or limit access to customer information by the affiliated insur-
                            ance agency.


Regulatory Oversight        Federal and state banking laws, regulations, and supervision serve to
                            help control credit abuses. A bank’s ability to give preferential treat-
                            ment and subsidize an affiliated insurance agency is restricted by
                            banking laws and regulations. Section 23A of the Federal Reserve Act
                            (12 U.S.C. Section 371C) limits loan and credit transactions with any one
                            affiliate within a bank holding company to 10 percent of the bank’s cap-
                            ital and the aggregate amount of lending to all affiliates to 20 percent.
                            Such transactions should be fully collateralized.

                            Section 23B of the Federal Reserve Act requires transactions between
                            banks and their affiliates within a holding company to be at arm’s
                            length with fair market pricing. For example, a bank is not to provide
                            customer lists or accounting services to an affiliate for less than the
                            bank would charge an unaffiliated company. Similarly, where a bank
                            shares space or overhead functions with an affiliate, the bank is to
                            charge the affiliate for its share of the costs.

                            We have reported that economic separation between a bank and its affil-
                            iates within a holding company can reduce incentives and opportunities
                            for a bank to give preferential treatment to affiliates.3 Economic separa-
                            tion provides that a bank and its affiliates must be adequately and sepa-
                            rately funded with no commingling of assets, that any services or loans

                            3BankPowers:Insulating BanksFromthe Potential Risksof ExpandedActivities (GAOIGGD-87-36,
                            Apr. 14,1987).



                            Page 31                                          GAO/GGD-90-113   Banks Selliug Insurance
                         cllapter 3
                         Increased Competition  for Other Sellers but
                         No Bisk ta BankIng Safety and Soundness




                         obtained from the bank be obtained at rates comparable to those
                         charged nonaffiliated parties, and that the bank be prevented from
                         unduly transferring assets to, or purchasing bad assets from, a weak
                         affiliate.

                         While existing banking laws and regulations restrict credit and require
                         arm’s length transactions for bank affiliates, similar restrictions do not
                         apply to transactions among bank departments or between a bank and
                         its subsidiaries, At this time, banks permitted to sell insurance may do
                         so through an affiliated insurance agency, a subsidiary agency, or an
                         insurance department within the bank.


Additional Regulatory    While preferential treatment of affiliates and subsidiaries is already
Measures Could Protect   addressed in the existing regulatory system, additional measures may be
                         necessary to ensure competition in insurance markets if bank powers
Competition              are expanded. While none of our interviewees could provide an example
                         in which a bank denied credit to a competitor, regulators may have diffi-
                         culties monitoring such situations. Since regulators can identify possible
                         banking abuses through complaint data, one way to identify credit
                         abuses may be to specifically track complaints by insurance sellers that
                         a bank denied credit.

                         Further regulatory measures could reduce banks’ competitive advan-
                         tages over other insurance sellers. For example, a bank and its affiliated
                         insurance agency could be required to use different names and logos,
                         locate in separate space, advertise separately, refrain from selling each
                         other’s products, and develop separate customer bases. Basically, regu-
                         lations could be designed to prevent banks from realizing economies of
                         scope through joint marketing. While such measures would protect other
                         insurance sellers from increased competition, full separation of mar-
                         keting for a bank and its affiliated agency would forestall consumers
                         gaining potential benefits from banks selling insurance.




                         Page 32                                        GAO/GGIMO-113   Banka Selling Insurance
                     Ckapter 3
                     Increased Competition  for Other Sellers but
                     No Risk to Banking Safety and Soundness




                     Contrary to opponents’ claims, bank sales of insurance underwritten by
Insurance Sales      an unaffiliated insurance company would not endanger banking safety
Present No Risk to   and soundness. Unlike underwriting, selling insurance does not involve
Banking Safety and   financial risk of loss. Insurance underwriters, not insurance sellers, are
                     responsible for paying losses incurred under policies sold to the public.
Soundness            In marketing insurance products, a bank does not incur liability for poli-
                     cyholders’ claims4 As a result, bank sales of insurance would not jeop-
                     ardize a bank’s capital and financial condition.

                     Moreover, potential commissions earned from insurance sales could
                     enhance bank profitability. In recent years, banks have attempted to
                     remain profitable by diversifying their income sources. Banks have sup-
                     plemented their traditional source of income-the difference between
                     interest earned on loans and interest paid on deposits-by charging fees
                     for services. Insurance commissions would offer another source of
                     income. To the extent that insurance sales result in more stable bank
                     profits, bank diversification into selling insurance could potentially
                     strengthen safety and soundness and protect against bank failures.

                     We cannot predict whether bank sales of insurance would be profitable.
                     Empirical studies of profits in banking and insurance selling suggest
                     that combining insurance selling and regular banking services could
                     increase the stability of overall profits. If insurance commission profits
                     tend to increase when loan profits decrease, overall profits would be
                     more stable. Nonetheless, the extent to which bank sales of insurance
                     could increase the stability of profits and decrease the risk of failure
                     depends on the bank’s management of the two operations and the types
                     of banking services and insurance products sold.

                     Not all banks will find insurance selling to be profitable. For a bank
                     within a holding company, profits earned by an affiliated insurance
                     agency may accrue to the bank holding company, and the bank itself
                     would be no more profitable. Also, in recent years, several banks have
                     abandoned insurance sales because they found it unprofitable. Reasons
                     mentioned for these withdrawals include the following: the banks were
                     not competing successfully against existing insurance sellers, they did
                     not develop a broad enough customer base among the customers of the
                     bank, and bank managers did not like customers substituting insurance
                     products for bank products.

                     4An insuranceagentmay be liable to policyholdersfor any mistakesmadein selling insurance.Errors
                     and omissionsinsuranceis purchasedby independentagentsto protect againstcapital losses.Any
                     bank selling insurancecould be required by regulatorsto acquiresimilar coverage.



                     Page 33                                              GAO/GGD-90-113    Banks Selling Insurance
              Chapter 3
              Increased Chmpetkion   for Other Sellere but
              No 6uek to Banking Safety and Soundneae




              While selling insurance in itself presents no risks to a bank’s capital, any
              expansion into a new business presents management challenges. Safety
              and soundness could be at risk if substantial management attention were
              diverted from core banking responsibilities, such as managing credit
              risk, to building and managing the insurance line of business. Recent
              studies of bank and thrift failures found management inadequacies and
              lack of adequate regulatory oversight contributed to failures. If banks
              gain powers to sell all types of insurance, regulators need to ensure that
              banks can manage the expanded powers. The Consumer Federation of
              America suggested that banking revenues earned from general insur-
              ance sales should be limited as a percentage of total income to ensure
              that banking remains the principal focus of banking management.

              Additional measures may be necessary to ensure that consumers do not
              become confused about whether insurance products sold by a bank are
              backed by federal deposit insurance and that the federal financial safety
              net does not extend to an insurance agency affiliated with a bank. One
              measure would be to expressly disclose to the consumer that insurance
              products are underwritten by an insurance company and are not cov-
              ered by banking deposit insurance.


              Expanded bank powers to sell insurance would create a more level
Conclusions   playing field between banks and other depository institutions and credit
              sources. The entry of banks into the insurance market would have
              mixed effects on other insurance players. While insurers underwriting
              products may benefit from the flexibility of another channel for
              reaching customers, other insurance sellers would face increased compe-
              tition from banks selling insurance.

              Banks have potential competitive advantages over other insurance
              sellers resulting from economies cf scope in joint production of banking
              and insurance services. An insurance seller affiliated with a bank would
              not only have access to bank customers and customer information but
              could share overhead costs with the bank as well. These advantages are
              not unique to banks, and any large-scale insurance seller has an advan-
              tage over small independent agents.

              However, a bank affiliated with an insurance agency could give prefer-
              ential treatment to its affiliate or deny credit to competing insurance
              sellers. In addition to competition and banking internal controls, regula-
              tory oversight can protect against preferential treatment by a bank.



              Page 34                                        GAO/GGIMO-113   Lhnh   Selling Jnaurance
.
    Chapter 8
    @crewed competition    for Other Sellers but
    No Risk to Banking Safety and Soundness




    While existing banking laws and regulations prohibit a bank from subsi-
    dizing an affiliate, similar restrictions do not apply to bank subsidiaries
    or departments within a bank.

    Regulatory measures prohibiting joint production by banks and affili-
     ated insurance agencies would prevent banks from using competitive
     advantages over other sellers. However, measures such as separate
    logos, offices, and staff would forestall potential benefits for consumers
    by precluding economies of scope and increased convenience. If insur-
     ance sales are less attractive to banks, insurance sellers would benefit
    by being protected from increased competition and pressure to lower
    costs. Trade-offs exist between allowing consumers to benefit from
    banks selling insurance and protecting other sellers from competition by
    banks. These trade-offs must be considered in deciding the degree of
    joint marketing and production to allow.

    Stringent measures restricting bank sales of insurance underwritten by
    an unaffiliated insurance company are not warranted to protect the
    bank or the safety and soundness of banking. The insurer underwriting
    the policies bears the financial risk of losses under policies sold by the
    bank.‘To the extent that bank sales of insurance are profitable, selling
    insurance could enhance banking safety and soundness.




    Page 33                                        GAO/GGD4O-113   Banks Selling Insurance
Appendix I

Organizationsand Individuals Interviewed


                        Bank Shares, Incorporated
Grandfathered Bank      Bremer Financial Corporation
Holding Companies       Citizens & Southern Corporation
                        Crestar Financial Corporation
                        Dacotah Bank Holding Company
                        First Bank Systems, Incorporated
                        First Oklahoma Bancorp
                        First Security Corporation
                        First Virginia Banks, Incorporated
                        First Wachovia Corporation
                        Firstar Corporation
                        Nor-west Corporation
                        Signet Banking Corporation
                        United Banks of Colorado, Incorporated


                        American Bankers Association
Banking Industry        Association of Bank Holding Companies
Organizations           Independent Bankers Association of America
                        Insurance/Financial Affiliates of America
                        Massachusetts Bankers Association
                        Minnesota Bankers Association


                        Independent Insurance Agents of America
Independent Insurance   Independent Insurance Agents of North Carolina
Agents’ Associations    Minnesota Association of Professional Insurance Agents
                        National Association of Insurance Brokers
                        Professional Insurance Agents Association
                        Professional Insurance Agents of New England


                        AIG Marketing, Incorporated, a subsidiary of American
Insurance Holding          International Group, Incorporated
Companies and           Aetna Life & Casualty Company
Affiliates              Alfa Insurance Corporation
                        Allstate Insurance Company
                        Depositors Insurance Company, a subsidiary of Allied Group,
                           Incorporated
                        Economy Fire and Casualty Company, a subsidiary of Kemper
                           Corporation
                        GEICO Corporation
                        John Hancock Mutual Life Insurance Company


                        Page 36                                  GAO/GGD-3@113   Banks Selling Jnsurance
                     Appendix I
                     Chfjahatlons   and Individuab   Interviewed




                     Metropolitan Life Insurance Company
                     Nationwide Insurance Companies
                     The Prudential Insurance Company of America
                     State Farm Insurance Companies
                     Travelers Insurance Company


                     American Council of Life Insurance
Insurance Industry   American Insurance Association
Organizations        Health Insurance Association of America
                     Insurance Federation of Minnesota
                     Insurance Information Institute
                     Life Insurance Marketing and Research Association, Inc.
                     Massachusetts Association of Life Underwriters
                     National Association of Life Underwriters


                     Consumer Federation of America
Consumer Interest    National Insurance Consumers Organization
Organizations

                     Lawrence Albright, Editor, Life Insurance Selling
Experts              Joseph Belth, Professor of Insurance, Indiana University
                     Robert Eisenbeis, Assistant Dean for Research, University of
                       North Carolina at Chapel Hill
                     Steve Germundson, Hales Associates
                     Sophie M. Korczyk, Ph.D., Consultant, Analytical Services
                     Ken L. Williams, Author, Direct Marketing of Consumer Insurance
                       to Bank Customers




                     Page 37                                       GAO/GGDlUHl3   Banka Selling Insmum
Appendix II                                                                                             c

Major Contributors to This Report


                              Lawrence D. Cluff, Assistant Director, Financial Institutions and
General Government              Markets Issues
Division, Washington,         Mitchell Rachlis, Evaluator-in-Charge
                              MaryLynn Sergent, Evaluator
DC.
                              Alfred R. Vieira, Regional Issue Manager
bston      Re@ona1   Office   JosephEv~s     Evaluator
                              Gretchen Laisk, Evaluator




                 Y




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