WASHINGTON - Federal Reserve Board Vice Chairman Alan Blinder nominated his agency to oversee financial services holding companies in the event Congress repeals the Glass-Steagall Act.

"I think frankly the Federal Reserve is a pretty good choice for that," Mr. Blinder told attendees at the Independent Bankers Association of America's annual conference here on Tuesday.

Mr. Blinder said he is open to suggestions on which other agency should regulate banks and nonbanks that might merge if Congress repeals the Glass- Steagall restrictions.

But, he said only one agency should take the lead role. "We are looking for trouble if we don't have one," he said.

While House Banking Committee Chairman Jim Leach wants to give the Fed an expanded supervisory role in his approach to Glass-Steagall repeal, the Clinton administration has proposed an inter-agency body to coordinate policy.

Mr. Blinder, in a wide-ranging speech on banking issues, also said regulations should harness - and not fight - market forces.

The Community Reinvestment Act, by pushing banks to make sound loans in low-income and moderate-income communities, can meet that mold once more bankers realize that type of lending is profitable, he said.

"The banks will want to be there," he said. "That is the best kind of enforcement there is."

The vice chairman conceded that not all regulations work. Reg Q, which limited the rates banks could pay on savings account deposits, failed and its repeal spurred extensive innovation in bank products, he said.

"History has judged that to be an error," he said.

Bankers cannot expect regulators to keep pace with market changes. But, the agencies should never fall more than one step behind, Mr. Blinder said.

"Asking more than that it asking too much for a government bureaucracy," he said.

Economists who call for the repeal of deposit insurance don't remember history, he said.

"We lived in that world once and we found it not to our liking," he said.

Mr. Blinder said there are five reasons for bank regulation - the need to foster and protect competition; the need to protect consumers; the fact that a consistent supply of credit is crucial to economic growth; the fact that one failure can lead to systemic problems, and the fact that the existence of deposit insurance and the Fed discount window distort normal market forces.

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