Hoping to reduce industry opposition to his financial modernization bill, House Banking Committee Chairman Jim Leach is supporting new powers for bank subsidiairies.

The Iowa Republican says he will introduce legislation in January allowing bank subsidiaries to enter securities underwriting and other businesses directly. Previously, Rep. Leach had wanted to restrict new activities to holding company affiliates.

Rep. Leach's proposal, to be included in part of his larger Glass- Steagall repeal bill, would codify a rule adopted by the Comptroller last month allowing bank subsidiaries to enter a whole range of new businesses.

"The Comptroller may be right in wanting to help lead bank modernization," he said.

But Rep. Leach stopped short of giving banks unlimited authority. In a speech Tuesday to the Financial Services Council, he said bank subsidiaries should be barred from insurance underwriting, merchant banking, and real estate investment activities. These activities would be limited to affiliates of the holding company.

Comptroller of the Currency Eugene A. Ludwig criticized Rep. Leach's plan on Wednesday, saying it would choke off the industry's ability to add new products.

"It is a mistake to take old-style boxes and assume those boxes are going to be immutable over time," Mr. Ludwig said in a brief interview. "You can't overestimate the dynamism of our economy."

But Rep. Leach argued the restrictions are necessary to protect federal deposit insurance. He also said that groups representing the insurance and securities industries would oppose direct bank entry into their markets.

Rep. Leach and Mr. Ludwig have been at odds for the past year over efforts to expand bank powers. Rep. Leach repeatedly accused the comptroller of undermining his legislation in order to keep the Federal Reserve from gaining authority over new banking activities.

Despite the comptroller's reservations, the American Bankers Association was enthusiastic about Rep. Leach's latest plan.

"We're very pleased to see him support the bank operating subsidiary concept," said James D. McLaughlin, the ABA's director of regulatory and trust affairs. "This allows banks the ability to choose the best way to organize their business."

Despite the added flexibility, however, many banks will still oppose Rep. Leach's new proposal, said Karen Shaw Petrou, president of the industry consulting firm ISD/Shaw Inc.

Though the Comptroller's Office has not spelled out which new activities it wants to allow for bank subsidiaries, adding restrictions is "fraught with risk," she said.

"I think Rep. Leach's proposal cuts two ways," Ms. Petrou said. "From bankers' point of view it's gratifying that he supports the operating subsidiary concept," but his limitations will be "a tender topic."

Rep. Leach's plan also would:

*Allow bank holding companies regulated by the Fed to own securities and insurance affiliates, which would be allowed to engage in merchant banking, insurance underwriting, and real estate investing.

*Permit commercial banks and securities firms to operate uninsured wholesale financial institutions.

*Let state insurance commissioners regulate the way bank affiliates sell insurance, but prohibit regulators from "significant interference."

*Merge the bank and thrift charters.

*Preserve existing unitary thrift holding companies.

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