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WHITE SULPHUR SPRINGS, W.Va.-The burdens of state regulation may put insurers and brokers at a competitive disadvantage with banks and other financial services companies that operate in a less regulated environment, a former federal regulator says.

State banking laws contributed to the banking crises of the 1980s, he says. Once reforms were initiated clearing the way for interstate banking, among other things, banks soon entered a period of consolidation and profitability.

The experience of banks offer lessons for the insurance industry as it faces the prospect of new competition as a result of federal financial services reform, says L. William Seidman, chief commentator on the cable network CNBC and publisher of Bank Director magazine. Mr. Seidman, chairman of the Federal Deposit Insurance Corp. from 1985 to 1991 and chairman of the Resolution Trust Corp. from 1989 to 1991, spoke during a session at the Insurance Leadership Forum, the 84th joint annual meeting of the Council of Insurance Agents & Brokers and the Council of Insurance Company Executives at The Greenbrier resort last week.

Officials of the CIAB also raised the issue of regulation; the group is lobbying for Congress to enact a national licensing clearinghouse for agents and brokers (see related story).

"When I left banking, it was in the worst shape since the Great Depression. Now, five years later, banks' capital and earnings are better than ever," said Mr. Seidman.

This improvement has been achieved as a result of "tremendous change" in banking regulation, he asserted.

Spurred by the banking problems of the 1980s, federal regulators removed barriers to interstate banking, as well as barriers to entry in other financial services fields, he said.

"Banking changes have been driven more by regulators looking at new ways of doing things, rather than by legislation," he noted.

The regulatory reforms sparked a period of competition and consolidation that has resulted in a banking industry whose demographics resemble a barbell, with several huge banks on one end, thousands of small banks on the other and few mid-sized banks in between, he said. Roughly 1,000 smaller banks go out of business each year, as supply confronts market demand, he added.

"Consolidation has eliminated duplication of services and excessive costs that were produced by regulators driving the structure of the industry," Mr. Seidman said.

"If you look at the insurance industry today, market-determined change has not occurred as it did in banking," he said.

If the insurance industry were less regulated and structured itself to meet market needs, regulation would be reserved for solvency oversight, he said.

The issue of insurance regulation becomes all the more relevant as the industry faces competition from banks, which have less restrictive oversight.

More and more banks are getting into the business of insurance sales, Mr. Seidman noted. "I know of no subject that's higher on banks' agendas," he said, noting that at a recent American Bankers Assn. meeting, one-fourth of the conference was devoted to insurance expansion.