Comptroller of the Currency Eugene A. Ludwig announced recently a new rule governing operating subsidiaries of national banks. The rule provides that a national bank may establish a subsidiary to conduct any activity permissible to the bank or deemed by the comptroller to be "incidental to banking."

Banks will now have greater freedom to expand through either holding company affiliates or direct bank subsidiaries. Some banks may choose to do away with their holding companies, simplifying their organizations and reducing costs.

Even state-chartered banks will benefit. Many states have "wild-card" statutes that give state banks all the powers enjoyed by national banks.

The comptroller's ruling drew fire from bank competitors and some public officials. One complaint is that the comptroller is acting beyond his statutory authority.

The legal brief released by the comptroller in support of his ruling is persuasive. Even more impressive is the comptroller's track record in recent years of unanimous Supreme Court decisions supporting his actions.

Another complaint, from Rep. Charles Schumer, Democrat of New York, is that the comptroller is deciding issues that "only the Congress should decide in the full light of open debate."

It doesn't appear the comptroller has decided anything except what Congress intended. The National Bank Act provides clear authority for banks to own subsidiaries. It also gives the comptroller broad authority to decide what is "incidental to banking."

The issue that will likely arise under the new rule is whether the comptroller should allow an operating subsidiary to engage in activities not permissible in the bank itself. The comptroller says he will evaluate each case on its own merits.

He will consider the reason for the restriction and whether the congressional purpose underlying the restriction would be frustrated by allowing the activity to be conducted in an affiliate. This doesn't appear to be the stuff of a constitutional crisis.

Another complaint made by Sen. Alfonse D'Amato, chairman of the Senate Banking Committee, is that the comptroller's action "may subject federally insured deposits to excessive risks ... Congress can never forget the lessons of the savings and loan crisis."

The comptroller has not sanctioned any new activities. He's simply said he's willing to consider new activities and has adopted procedures for making such decisions.

If the comptroller authorizes a subsidiary to engage in an activity in which a bank cannot engage, he has enumerated safeguards to protect the bank. The bank's investment in the subsidiary must be deducted from the bank's capital and assets, and the subsidiary's assets and liabilities may not be consolidated with those of the bank.

Any loans from the bank to the subsidiary must conform to the same rules applicable to holding company affiliates. They can't exceed 10% of the bank's capital, must be fully collateralized, and must be made on arm's length terms.

The subsidiary's corporate name can't be the same as the bank's. Moreover, it must operate in physical facilities distinct from the bank's and must make clear to customers that they're not dealing with the bank.

With these and other safeguards in place, it's difficult to discern a significant threat to insured deposits. Certainly there's no more risk than would be present if the activities were conducted in a holding company affiliate.

The principal lesson of the S&L crisis is that the marketplace will not tolerate government-imposed barriers intended to protect firms from competition. The government refused for decades to allow S&Ls to change despite powerful evidence they were becoming irrelevant in the marketplace.

The biggest threat to the safety of our nation's banks will be not allowing them to evolve. Banks have lost massive amounts of market share in the past two decades, and their risk profiles have risen as a direct result.

Competitors of banks are not standing still. Consumers of financial services are demanding a better deal. If they can't get what they want from banks, they have shown through their actions they will turn elsewhere. Driving customers out of the banking system is clearly not in the best interests of either the banks or the public.

Mr. Isaac, former chairman of the Federal Deposit Insurance Corp., is chairman and CEO of Washington-based Secura Group

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