WASHINGTON - House Banking Committee Chairman Jim Leach has modified his Glass-Steagall bill to make it easier for banks to offer new products and support securities affiliates.

Under the new language, it would no longer be necessary for bank holding companies to receive Federal Reserve permission before undertaking new activities that have previously been authorized for other institutions.

For financial activities that have not been previously approved, banks would provide notice - as opposed to filing an application and waiting for the Fed to say yes or no. The Fed would have a short period of time to object to the notice.

The bill will now also give banks more flexibility to support securities affiliates. A bank could, for example, provide financial guarantees such as letters of credit to support securities underwritten by an affiliate, a practice that is barred now.

Those transactions would have to be made at "arm's length", or on the same terms available to any securities company.

The bill is being redrafted to rename the Bank Holding Company Act the Financial Services Holding Company Act. Bank holding companies would be redesignated as financial services holding companies.

More important, the "closely-related-to-banking " test that is used to decide whether certain activities are appropriate for banking concerns would be recast as a "financial in nature" test.

Banking committee aides said the revised test would give regulators more flexibility to expand bank powers.

"It's an easier test to meet because it doesn't have to be tied to bank powers," said one aide. For example, the new language might give banks more latitude to expand in the computer field.

Rep. Leach was also mulling whether to ease proposed restrictions on unitary thrift holding companies, although a decision had not been made by late Wednesday afternoon.

The Iowa lawmaker's bill now proposes that the special powers available to unitary thrifts, such as insurance and securities underwriting, be eliminated. A number of sources said he was considering exempting - or "grandfathering" - existing unitary thrift holding companies.

But Patrick Forte, president of the Association of Financial Thrift Holding Companies, which represents a number of unitary thrifts, said grandfathering "is not good enough."

"It's like delaying death - the financial disaster of waiting until you have to divest," he added.

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