CHANGES IN BANKING TO BE SLOW; AMERICAN FIRMS WILL FOLLOW EUROPE'S LEAD.

Byline: Joseph Kahn The New York Times

During the careers of every living executive in the finance industry, bankers have made loans, brokers have sold stocks, insurers have underwritten policies to protect against disasters, and, with exceptions that sometimes made headlines, they rarely trespassed on one another's turf.

This gentlemanly division of labor was designed to make sure that a catastrophic failure in one part of the finance industry did not invade every other part - or, more precisely, that a stock market crash would not undermine the entire financial system as it did in 1929. It worked, and it has more or less endured: Even today, after a decade that has witnessed unprecedented consolidation and diversification in finance, it is not inaccurate to think of Chase Manhattan as a lender, Merrill Lynch as a broker and Prudential as an insurer, though they all do other things as well.

But with Congress about to consign the rules that underlie that tripartite division of financial services to history, industry executives and analysts say it's only a matter of time before changes already under way mean that the largest financial companies will offer many ways of saving, investing, borrowing and protecting money under one roof.

Universal banking

The Europeans call this a universal bank, and many believe American firms are moving headlong in that direction.

Shares in bank, insurance and securities companies soared Friday on merger speculation. The biggest winners were life insurance companies, which some saw as prime targets of banks hoping to offer insurance policies to their customers. Investors see banks and Wall Street firms as effectively in play as well, though industry executives said that change may come slower than Friday's market reaction suggested.

Consumers stand to gain from the convenience of finding every financial product they need in one place, often for less money than they are accustomed to paying. But consumer groups have already begun to raise red flags about privacy in a world in which the same company insures a customer for both sickness and early death, or tracks how much debt a client is incurring through mortgages, credit cards and margin loans. The financial provider as Big Brother might theoretically discriminate against providing life insurance for people with shaky medical histories, or inundate those who owe lots of money with high-cost loans.

The concept of one-stop shopping is not, of course, a new one. American Express, the credit card company, already lets clients trade stocks. Merrill Lynch already provides home mortgages and business loans. And Citigroup, an agglomeration of a bank, a securities firm and an insurance company, is the antithesis of what lawmakers sought to achieve in the 1930s, when legislation to divide the industry into heavily regulated fiefdoms was first enacted.

Practical difficulties

But while counter-examples abound, the practical difficulties of cross-selling and merging across industry lines have kept American financial companies from selling the broad range of products their European counterparts do. In particular, the repeal of Glass-Steagall will make it far easier for banks, insurers and brokerage firms to introduce new lines of business without going through legal loopholes like setting up Bermudan subsidiaries to underwrite insurance polices, or buying thrift companies in order to sell bank-like products through the back door.

``Over time, as firms fully understand the implications of this change, it will stimulate consolidation,'' said David Komansky, chairman and chief executive of Merrill Lynch. ``For us and the other major securities firms, it clearly opens a range of strategic alternatives.''

Few expect the financial landscape to change overnight. Consumers tend to remain loyal to their local bank or family stock broker longer than economic models predict. Moreover, some banks may not want to sell health insurance any more than the Gap wants to sell television sets.

But the catch phrase in the banking industry is ``deepening share of wallet.'' When a bank is already paying rent for a branch office and a brokerage firm paying the salary of a broker, they welcome the chance to pump more goods through existing channels.

``We will start to see the emergence of the universal bank - all financial services under one corporation,'' said Bert Ely, a banking industry consultant. He said the new legislation provides fertile soil for combinations involving bankers and insurers. ``I think it's highly likely that you would see a wave of mergers there.''

AIG, Metropolitan and Prudential, three of America's biggest insurance companies, might be among the biggest targets for banks, Ely and other analysts said. Or, they might look for banks to acquire themselves. What seems certain is that the splendid isolation insurance companies have enjoyed even more than banks and securities companies is nearing an end.