WASHINGTON - House Banking Committee Chairman Jim Leach vowed an all- out fight Tuesday against an administration proposal to permit securities underwriting through bank subsidiaries.

The Iowa Republican said he is pleased the White House wants to repeal the Glass-Steagall Act, but he insisted that new powers be housed in separately capitalized holding company subsidiaries.

"Allowing a bank or its subsidiary to engage in risky nonbanking activities would jeopardize the deposit insurance system," he said as the committee began consideration of legislation to modernize the banking and financial services industry.

"I believe that such an approach, which is contrary to existing law, is imprudent."

However, Comptroller of the Currency Eugene A. Ludwig defended the administration plan and criticized provisions in Rep. Leach's Glass- Steagall repeal bill that require use of the holding company structure for new powers.

"It is not enough to allow a bank to undertake new activities if in so doing we impose so many unnecessary burdens that we lose the benefits of diversification," Mr. Ludwig said.

"If we dismantle the Glass-Steagall wall, we must not leave so much regulatory barbed wire in its place that we defeat our objectives."

Mr. Ludwig recently proposed new rules that would permit bank operating subsidiaries to exercise broad new powers, and those rules would be overturned if the Leach bill passes.

Three major legislative proposals on bank powers have been unveiled this year. Rep. Leach's bill would repeal the Glass-Steagall Act but keep banks from affiliating with insurance companies or nonfinancial firms.

The administration bill would let banks into insurance, and legislation sponsored by Senate Banking Committee Chairman Alfonse M. D'Amato, R-N.Y., would go still further, permitting common ownership of banks and nonfinancial companies.

Mr. Leach reserved much of his fire for the D'Amato bill, which was introduced in the House by Rep. Richard Baker, R-La.

"There aren't 500 people in America who advocate this approach, half of whom represent foreign firms and the other half several dozen large American companies," Rep. Leach said.

The committee chairman drew partial support from Federal Reserve Board Chairman Alan Greenspan, who urged lawmakers to repeal the Glass-Steagall Act now and consider banking and commerce issues later.

But the Fed chairman said he has no philosophical objection to affiliations between banks and nonfinancial companies, and said the distinctions are growing increasingly blurred anyhow.

Much of the discussion during Tuesday's hearing focused on the issue of who should regulate a financial services holding company that owns both a bank and a securities affiliate.

The administration's proposal does not call for a single, overall regulator, while Rep. Leach has proposed the Fed supervise the new entity.

Mr. Greenspan said it wasn't essential for the Fed have direct supervisory power over a securities unit, because he was content to rely on the Securities and Exchange Commission. But he has come to believe it is important to have some kind of "umbrella" supervision for any organization that owns an insured bank.

"The purpose of the umbrella supervisor is to have an overview of the risks in the organization so that the risks to the bank can be evaluated and, if needed, addressed by supervisors," he said.

Mr. Greenspan also warned the committee against placing too much faith on "firewalls," legal safeguards intended to protect insured deposits from the risks undertaken by securities affiliates.

"Under stress, they tend to melt," Mr. Greenspan said.

Also appearing at the hearing was Federal Deposit Insurance Corp. Chairman Ricki Tigert Helfer, who urged repeal of the Glass-Steagall Act, but called for safeguards to protect the insurance fund.

In addition, Office of Thrift Supervision Director Jonathan Fiechter asked the panel to reject a provision in the Leach bill that would end the special powers enjoyed by unitary thrift holding companies.

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