First Union, the nation’s sixth-largest bank, is voicing deep concerns about the current versions of financial modernization legislation, including provisions that the industry fears could greatly increase the cost of and unreasonably delay mergers and acquisitions.

In its comments to the American Bankers Association, First Union specifically referred to the House version of the bill, which contains a provision giving the Federal Reserve Board the authority to hold hearings in all communities affected by a potential merger. This will “expand the processing time for applications and give opposition groups unprecedented opportunities to inappropriately impede bank transactions,” a bank official said.

While some difficult language was watered down during committee consideration, First Union remains convinced that the legislation’s effect will be to mandate expensive, time consuming hearings in virtually every merger transaction.

The letter, signed by Marion A. Cowell Jr., executive vice president, general counsel and secretary of First Union, also voiced concerns about certain powers issues, especially as they deal with sales of insurance and other products and services. It also sought to prod the industry’s Washington lobbyists to back off from support of the bill.

The upshot of the letter is that banks might be better off with their current lot, relying on federal pre-emption power and the National Bank Act, instead of depending on the functional regulation proposed in the bills. It also says that while the legislation as currently written may benefit certain mega-banks, “First Union believes that any comprehensive review of the legislation will find very little in the way of new banking powers and instead reveals the imposition of significant, as well as unnecessary new restrictions on banks and bank holding companies.” Industry lobbyists said the banks First Union is talking about include institutions such as BankAmerica, Citigroup, Bank One and J.P. Morgan.

“We do not believe that this represents “modernization” for the banking industry and hope that the ABA shares our view,” the letter says. First Union added that “it remains disappointed” in the ABA’s “continuing support or non-opposition” to the insurance safe harbors contained in both the House and Senate versions of financial modernization legislation. The safe harbors would allow certain states to treat banks differently than other distributors in sales of insurance. “We have already seen these safe harbors that allow for discrimination against banks can cause problems in certain states and we believe that the ABA’s acquiescence to these provisions has been extremely counter-productive to the industry.”

The letter also says that First Union “continues to believe that the removal of the Office of the Comptroller’s agency deference will be a significant problem for the industry. The banking industry would not be able to offer the products and services that are offered today without the strong support of the OCC and the agency’s litigation success,” it says.

An ABA staff official said last week the trade group is taking no position on the bill–the same day, the ABA joined a group of securities, mutual funds and insurance industry trade groups in sending letters to the Senate leadership seeking prompt action on a version of the bill passed by the Senate Banking Committee March 11