WASHINGTON - Bank holding companies shouldn't have to use nonbank subsidiaries to exercise new retail brokerage powers, a top industry lobbyist told Congress last week.

"We have always believed, with respect to retail activities - say a retail brokerage - that you should have the option to do it as a subsidiary (of a banking unit), because retail activities have very little risk," said Edward L. Yingling, executive director for government relations for the American Bankers Association.

House Banking Committee Chairman Jim Leach, by contrast, wants securities activities moved into a holding company subsidiary.

A proposal forwarded by the administration would allow insurance companies and other financial corporations to be subsidiaries of federally insured institutions. However, lawmakers have expressed concern that this arrangement poses undue risks to deposit insurance.

"I happen to have concerns about the subsidiary approach," said Rep. Richard Baker, chairman of the capital markets subcommittee. "The holding company structure has one additional break before it rolls into the lobby of the bank."

The Louisiana Republican introduced a measure that would allow common ownership of insured institutions and commercial firms through a financial services holding company structure.

Rep. Baker stressed that the problems presented by allowing commerce and insured banks to affiliate may be less important than the repercussions of holding back modernization of the financial services industry.

"People have talked a lot about the negative potential impacts of commerce and finance, but we have not talked at all yet about the negative consequences of taking another baby step," Rep. Baker said.

Instead of disallowing insured institutions to affiliate with commercial firms, lawmakers should examine how to limit deposit insurance exposure to "what in essence is a bad business decision in some (affiliate)."

James D. Robinson, the former chairman of American Express Co., suggested that the level of deposit insurance an institution offers to depositors should be subject to the risk involved with the institution's affiliate.

Mr. Robinson, who now runs a small investment firm, said he supported the notion of allowing commercial firms to affiliate with insured institutions under a holding company.

"I support full diversification of financial services, so that any company, regardless of its affiliations, would be permitted to enter any sector of the financial services industry," Mr. Robinson said.

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