Eugene A. Ludwig wants the market - not the government - to shape the corporate form banks must use.

"The holding company format was not created for a real public policy reason," Mr. Ludwig, the comptroller of the currency, said in a recent interview. "There is no compelling safety-and-soundness reason that these structures need to be there.

"The issue here is choice."

Given a choice, he said, banks will move toward a simpler corporate structure. In a recent speech to the Jerome Levy Economics Institute, Mr. Ludwig noted that in 1986 the typical multistate holding company had 12 bank affiliates. By the middle of 1995, holding companies had consolidated their banks into about half as many charters.

"We are seeing a clear market trend for bank holding companies to consolidate their operations into the minimum number of charters possible," Mr. Ludwig said.

As Mr. Ludwig sees it, banks should be able to conduct most of their businesses directly, including some products and services prohibited for their parent companies.

Mr. Ludwig's vision runs counter to that of House Banking Committee Chairman Jim Leach, whose Glass-Steagall bill would allow federally insured banks to engage in securities and insurance activities only through holding company affiliates.

Rep. Leach has said that these activities are riskier than core banking activities, and should be separated from the bank through holding company units. The Federal Reserve, which played a large part in writing the Leach bill, favors the holding company model as well.

In fact, Mr. Ludwig said, holding companies were not created with the goal of reducing risk. They evolved primarily to help banking companies circumvent barriers to operating across state lines, not to insulate the deposit insurance funds from risk, Mr. Ludwig said.

The structure allowed banking corporations to have multiple bank offices and own banks in different regions, despite state branching restrictions.

With these impediments removed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, the need for holding companies has been reduced, Mr. Ludwig said.

He also challenged Rep. Leach's contention that new products and services are riskier than traditional banking businesses like lending.

"It is quite peculiar that we haven't differentiated activities on the basis of risk analysis," Mr. Ludwig said. "We need a hardheaded analysis, because nobody has asked, 'Is this really risky, and how should we deal with this in a banking context?'"

Besides, the comptroller said, the new attention examiners are paying to risk management renders a bank's organizational structure less important. The OCC has been touting its largely untested "supervision by risk" program, under which examiners rely more on scrutinizing a bank's risk management systems than making a loan-by-loan analysis.

"Risk management and supervision are vastly more important than the corporate form," said to Mr. Ludwig.

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