NEW YORK - The first rules spawned by the new financial reform law could be proposed as early as next week, regulators said Tuesday.

The Federal Reserve Board plans to release a proposal in the next week or so that would detail how to apply to become a financial holding company under the Gramm-Leach-Bliley Act, J. Virgil Mattingly Jr., the central bank's general counsel, said during a Securities Industry Association conference on the new law's impact.

Banks must be well capitalized, well managed, and have "satisfactory" or better community reinvestment ratings before merging with insurance or securities companies to form a financial holding company.

Julie L. Williams, chief counsel of the Office of the Comptroller of the Currency, said her agency will issue a proposal at about the same time spelling out similar requirements for banks that want to conduct new powers in financial subsidiaries. The law requires both rules to be finalized by March 12.

Getting into the banking business will be easier said than done for securities firms despite the recent enactment of financial reform, experts said here Tuesday.

"There are a great number of burdens that come with owning a bank," said Eugene A. Ludwig, former comptroller of the currency, in a luncheon speech. "This is in no way a free ride. ... The bank supervisory process is different [than traditional securities oversight.] It is more obtrusive, more constant."

But any remaining legal hurdles and new regulatory responsibilities will not be enough to deter the largest investment houses from diversifying, industry officials said.

"The successful, larger global top-tier players will have capabilities and a presence in the market that include banking" in addition to securities, said Amanda L. Gimble, a first vice president and co-head of corporate strategy for Merrill Lynch & Co. Overall, the legislation signed by President Clinton on Nov. 12 to remove the barriers separating the banking, insurance, and securities industries is "a win for the industry, a win for the consumer."

"There will be a few more Citigroups - but we do not think there will be 20, 30, or 40," said Steven M. Roberts, partner in charge of KPMG's national regulatory practice in Washington. Only a handful of companies have the capital and international reach to form such huge financial services entities, he said, but regional players may form smaller linkages, and smaller firms may develop alternatives such as creative sales practices

Panel discussions underscored some of the new requirements and business challenges securities firms face as they try to begin offering long-coveted banking services.

Besides the prerequisites to merge with a bank, securities firms will face new restrictions on their investments. For instance, financial holding company units that engage in merchant banking must be "passive investors" - meaning they may not be involved in day-to-day management of an outside company in which they hold an interest. That could be "a real disadvantage" if the investment becomes troubled and the financial company is barred from getting involved, said Richard T. Chase, general counsel of U.S. Bancorp Piper Jaffray.

Also, investment houses often own nonfinancial companies, but the new law would not let them keep those interests if they merge with a bank. The law permits securities firms and some other companies to derive as much as 15% of their revenues from nonfinancial activities, but only for up to 15 years. After that, they would have to divest these operations, and in the interim could not use them to cross-market products with banking affiliates.

House Banking Committee Chairman Jim Leach, an arch-critic of mixing banking and commercial activities, warned conference attendees not to expect Congress to weaken the law. "In my view, there is no national interest in it" or business benefit, Rep. Leach said, adding that the average "hard-headed, common-sense" American opposes to such economic concentration.

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