Ludwig Calls for Fed to Justify Brake on Bank Securities Sales

WASHINGTON - Comptroller of the Currency Eugene A. Ludwig challenged a fellow regulator to say why commercial banks should not be allowed to market securities through a subsidiary.

"Unless the government can make a clearly compelling safety and soundness case for the holding company structure, banks should have the freedom to choose which model - or combination of models - they want to employ," Mr. Ludwig said.

Mr. Ludwig was aiming his fire at the Federal Reserve Board, which has argued that bank securities affiliates should be housed in a subsidiary of the holding company, rather than a company owned directly by the bank. House Banking Committee chairman Jim Leach, R-Iowa, is taking the same approach.

The Comptroller, by contrast, has proposed regulations that would permit national banks to apply for permission to offer expanded financial services through operating subsidiaries. Those rules could be preempted if the Leach bill passes.

The Clinton administration has incorporated Mr. Ludwig's views in its proposals on Glass-Steagall repeal.

In a speech to the annual conference of the Institute of International Bankers in Washington on Monday, Mr. Ludwig said Congress should leave some choices to banks and regulators.

Like the banks they supervise, regulators should be given some flexibility in determining bank safety standards, and should not use a "one-size-fits-all approach," he said.

"Where fire walls are used we ought to establish a strong minimum standard," Mr. Ludwig said. "Above that standard, we should give the regulator flexibility to adjust the fire wall for the particular safety and soundness circumstance."

Mr. Ludwig told the foreign bank group that Glass-Steagall repeal will benefit low income neighborhoods.

"Even though other financial institutions provide many services that were once the exclusive domain of commercial banks, the banking industry remains connected to its community in ways other financial services providers simply are not," Mr. Ludwig said.

"If you drive all the business out of the bank, there isn't much to support Main Street," he added.

"While some may argue that there should be more bank branches in low- income neighborhoods and that banks should provide higher levels of consumer protection, other mainstream financial service institutions, by and large, don't even have a presence in those neighborhoods and are virtually unregulated from a consumer protection standpoint," he added.

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