In the Oct. 28 list of "winners and losers" in the Gramm-Leach-Bliley Act, you labeled the Office of the Comptroller of the Currency a loser and suggested that the act "is expected to result in most new powers being offered from holding company units rather than national bank subsidiaries."

You might want to reconsider.

The act ratified the authority for national banks to place most nonbanking activities in operating subsidiaries. Prior to this, many national banks had not taken full advantage of the OCC's Part 5 rule because it had never been fully tested in the courts. Gramm-Leach-Bliley eliminates that litigation risk, permitting most nonbanking activities to be conducted in an operating subsidiary of a national bank.

Admittedly, the act prohibits "op subs" from engaging in activities such as insurance, underwriting, real estate development, and for a time, merchant banking. However, for all remaining activities, the op sub will be an attractive option for many banks.

This option has several advantages over holding company affiliates. It permits earnings from nonbanking activities to be upstreamed directly to the parent bank. It facilitates cobranding strategies and allows the bank to deal with its principal regulator, the OCC. Contrary to your speculation, it may well be that national banks will increasingly use op subs to underwrite securities, sponsor mutual funds, sell insurance, and engage in any number of activities found to be financial in nature.

Additionally, the Gramm-Leach-Bliley Act left intact the OCC's authority to permit national banks to engage directly in activities that are part of or incidental to the business of banking. Since the Supreme Court's Valic decision, the OCC has interpreted this authority broadly. For example, it has permitted national banks to engage in a variety of strategic alliances with technology firms.

There is no reason to believe that the OCC will not continue to use this authority to permit national banks to engage in new activities as the business of banking evolves in response to competitive and technological changes.

Finally, provisions of the act that limit the activities of national banks -- such as prohibitions on insurance underwriting, real estate development, and merchant banking -- are scarcely life-threatening to most of the banks and are likely to disappear over time as the advantages of the op sub option over holding company affiliates become clear to the industry and policymakers.

Carter H. Golembe

Managing Trustee,

Support Group for Modern National Banking, Washington

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