House Banking Committee Chairman Jim Leach's speech before the Institute of International Bankers created quite a stir last week. Veteran observers have difficulty recalling a more vitriolic attack directed at a bank regulator.

Mr. Leach accused Comptroller of the Currency Eugene Ludwig of violations of law of constitutional gravity. He added that Mr. Ludwig's actions are "exclusively responsible for the delay in consideration of Glass-Steagall reform and regulatory burden relief legislation." Moreover, Mr. Leach charged Mr. Ludwig with abusing his position by lobbying banks to influence legislation.

I've known and admired Jim Leach for many years. He's bright, conscientious, and thoughtful. His hyperbolic attack on Mr. Ludwig is very much out of character.

Gene Ludwig is intelligent, thoughtful, and public spirited. He would not take any action he believed was contrary to the public interest or violated his oath of office.

The proximate cause of Mr. Leach's outburst was a relatively minor matter. Mr. Ludwig permitted Magna Bank to convert from a state bank to a national bank and retain its insurance agency and real estate brokerage subsidiaries.

Mr. Ludwig believes the National Bank Act gives the comptroller discretion to allow a converting bank to retain assets not otherwise permissible to national banks. Mr. Leach disagrees.

There are no major public policy issues involved in the Magna case. The comptroller's decision does not threaten the Constitution, weaken the dual banking system, or create a loophole for expanding bank insurance activities.

Prior to its conversion to a national bank, Magna operated in conformity with state law with its deposits insured by the Federal Deposit Insurance Corp. Magna's conversion to a national bank changed nothing but the piece of paper it hangs on its wall to indicate the type of charter it holds.

The good state of Missouri, not the comptroller, decided Magna could offer insurance and real estate brokerage services. The FDIC could have and would have blocked those activities if it had regarded them as hazardous to the soundness of the bank.

The underlying cause of the tension between Mr. Leach and Mr. Ludwig is their difference of opinion on the legislation currently before the House Banking Committee. Mr. Leach wants the Glass-Steagall and regulatory reforms enacted even at the cost of placing new restrictions on bank insurance activities.

Mr. Ludwig believes the legislation is not in the public interest for two reasons. The first is that it would force banks to use the holding company structure, rather than bank subsidiaries, for expansion into new financial activities. Mr. Ludwig disagrees with that approach.

The holding company was conceived as a device to avoid government restraints on branching. It's an inefficient structure that does nothing to advance safety and soundness that couldn't be achieved by less intrusive means. It's no longer needed.

Mr. Ludwig also disagrees strongly with the proposed moratorium on bank insurance activities. He believes the moratorium is antithetical to the public interest. I have found no one who is not either an independent insurance agent or beholden to one who believes we should restrict competition in this manner.

Mr. Ludwig has the right, if not a duty, to express his views on banking legislation to bankers or anyone else who will listen. The Federal Reserve did just that when the Clinton administration proposed to strip its bank regulatory authority.

Mr. Leach's real problem is not Mr. Ludwig. If most bankers agreed with Mr. Leach, the legislation would sail through Congress, Mr. Ludwig's views notwithstanding. The legislation is stuck because it's not worthy of being enacted. It's not in the interests of either the banking industry or the public.

Mr. Leach said in his speech that "disregard for the rule of law in the executive branch inevitably provokes disrespect within Congress for actions taken by the executive branch." A more germane point is that pandering to special interests inevitably provokes disrespect by the American public for actions taken by Congress.

Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.

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