It's anybody's bet whether Congress will overhaul the Glass-Steagall Act this year. But no matter what happens on Capitol Hill, Comptroller of the Currency Eugene A. Ludwig is charging ahead with a proposal of his own that could pave the way for a significant expansion of national bank powers.
Mr. Ludwig is undertaking a broad rewrite of rules on corporate applications and notices. For national banks, the regulations promise a reduction in paperwork and streamlined procedures for applications.
State banks might also benefit through "wild card" laws that give them the same powers as national banks.
Under the comptroller's proposal, national banks would no longer need file applications for many corporate activities, such as opening or relocating branches. Instead, they could simply file notice with the Comptroller's office and proceed if the agency does not object.
The difference is more than semantic. Applications subject to approvals can hang for months and even years before a regulator gets around to rendering a decision. The notice procedure, by contrast, provides a date certain.
"The industry has to go hat in hand to the regulators everytime they want to do something" under the existing system, said James McLaughlin, director of agency relations for the American Bankers Association. "So this helps a lot."
But while paperwork reduction appeals to banks of all shapes and sizes, it is the prospect of new powers in the Comptroller's initiative that has the industry buzzing.
That's because the rules would confer a new status on operating subsidiaries. At present, operating subsidiaries are permitted to engage in powers incidental to banking only if the activities are permissible for the parent bank.
The pending "op-sub" rules would permit the units to engage in powers incidental to banking, without regard to many of the legal restrictions that bind banks, such as the Glass-Steagall Act's ban on investment banking.
That's not to say that the rules would immediately free banks to underwrite a full range of securities through their operating subsidiaries. Any new powers would have to be approved by the Comptroller's office, and nobody expects Mr. Ludwig or his successors to simply open the floodgates for new activities.
But if floodgates are out of the question, the regulations would open at least a door for new powers.
One obvious candidate is revenue bond underwriting. Though that power is now prohibited by the Glass-Steagall Act, a case can be made that revenue bonds are incidental to banking and therefore permissible for the newly refashioned op-subs. Expanded insurance and real estate powers are also likely candidates.
Karen Shaw, an analyst who follows bank legislation and regulation, said the op-sub rules take on special significane in light of the interstate branching bill that passed last year.
Under interstate, banks can branch across state lines without making use of the holding company structure. And the op-sub rules mean such bank units can exercise powers that are potentially broader than those available to holding company subsidiaries.
"It opens the door to creation of the universal bank," said Ms. Shaw, referring to the kind of all-pupose financial institutions that are common in Europe.
The op subs are also likely to play a prominent role in more traditional activities, such as data processing, according to other experts.
H. Rodgin Cohen, a law partner with Sullivan & Cromwell in New York, said the units would be free from the funding restrictions that make it next to impossible for banks to lend money to holding company affiliates.
"It's an ideal route for technology ventures," he said.
The Supreme Court's decision this week in the Valic insurance case suggests that Mr. Ludwig has broad authority to confer new powers on the banking industry, should he decide to use them.
"The court said the comptroller has the right to decide what is the business of banking," said Konrad Alt, the Comptroller's chief of staff. And the op-sub could be the vehicle of choice in the future to carry out the new business of banking.