The Virginia General Assembly gave a boon to state-chartered banks, credit unions and savings and loans this week when it passed a bitterly contested measure that allows the institutions to sell insurance.

Banks that act as insurance agents can earn hefty commissions -- a real plus in a slow economy, when banks' traditional lending becomes riskier. Insurance agents fiercely opposed the incursion onto their turf.

The Virginia House of Delegates, voting 66 to 16, put the final seal on the measure Monday. The Virginia Senate voted 17 to 11 last week to approve the bill, which awaits the governor's signature. A spokeswoman for Gov. L. Douglas Wilder declined to say yesterday whether he would sign the bill.

Getting broader powers for state-chartered institutions has been a priority of the Virginia Bankers Association since 1987. The association has argued that bankers should be allowed to compete with other financial service firms that offer a wide array of products.

"If State Farm can offer auto loans and Travelers can make home equity loans, then bankers ought to be allowed to sell insurance," said Leton Harding, association vice president.

Unlike a law adopted by Delaware last year, Virginia's bill does not allow state-chartered institutions to underwrite insurance, a more risky activity.

The banking industry, seeking higher profits, has wanted broader powers for state and federally chartered institutions for years. Dozens of states have passed laws that allow banks and S&Ls to sidestep federal prohibitions against selling insurance or securities. The Bush administration is expected to promote such powers in a study the Treasury Department will release in the coming weeks, and Congress is expected to review the issue this year.

In general, neither the District nor Maryland allows its banks to sell insurance. The Virginia law passed despite vigorous opposition from insurance lobbyists, including the Virginia Association of Life Underwriters and the Independent Insurance Agents of Virginia, which argued that the bankers should not get broader powers because they would coerce their borrowers into buying the insurance.

The associations also contended that bankers have a record of overcharging on the credit insurance they are currently allowed to sell.

"We are still very concerned that because banks do have certain information {about customers}, they may use it to sell their products," said Betty Williams, executive director of the Virginia Association of Life Underwriters.

Harding dismissed the contentions, saying studies by federal agencies and local officials found no evidence of coercion. He also said that credit life insurance is an unprofitable product that Virginia insurers declined to sell in amounts of less than $50,000.

Harding said that four of the state's largest banks, C&S/Sovran Corp., First Virginia Banks, Signet Banking Corp. and Crestar Financial Corp., already have the right to sell insurance because they established those businesses before legislation was passed to prohibit such activity.

Nearly 60 smaller banks in communities of fewer than 5,000 people also have insurance brokerage authority through an exemption for banks serving small towns.

The new law, if signed, would take effect July 1 and would allow the state-chartered institutions to act as insurance agents in Virginia and any other state that would admit them.