WASHINGTON - The Office of the Comptroller of the Currency stepped up its assault Tuesday on Rep. Jim Leach's Glass-Steagall repeal bill, slamming a provision that would limit the activities of bank subsidiaries.

"There are unnecessary restrictions being placed on aspects of how banks do business," Julie Williams, chief counsel for the Comptroller of the Currency, declared at a House Commerce joint subcommittee hearing. Ms. Williams delivered testimony that had been prepared for Comptroller Eugene A. Ludwig.

The Comptroller's office agrees with Rep. Leach, the chairman of the House Banking Committee, that the Glass-Steagall Act should be repealed.

The Leach bill, however, would require insured institutions to move underwriting activities out of the bank and into holding company subsidiaries, which are regulated by the Federal Reserve Board.

That provision, included in the bill sent to the House by the Banking Committee, would spell the end of Mr. Ludwig's ambitious proposal to expand the powers of bank operating subsidiaries.

Though Mr. Ludwig had found fault with the Leach bill in earlier statements before the House Banking Committee, Tuesday's testimony marked a step up in the Comptroller's criticism of the industry modernization bill.

Ms. Williams argued that relying too much on structure as a protection against risk is "conceptually unsound."

"Experience shows that the location of an entity in a banking organization's corporate structure matters little when a banking organization decides whether to support its affiliate," Ms. Williams said.

Securities and Exchange Commission Chairman Arthur Levitt took issue with a provision in the bill that would allow existing securities activities to remain inside the insured bank.

In a compromise with the banking industry, Rep. Leach agreed to allow banks to keep existing activities within the institution, but in a "separately identifiable division or department." New securities powers would still have to be housed in a holding company unit.

Mr. Levitt argued that in order to ease SEC examination of bank securities activities, all such transactions should be moved to a separately capitalized subsidiary.

The Leach approach "could hamper the SEC's ability to examine their securities activities, whose capital and records would be dependent on, and intermingled with, those of the bank," Mr. Levitt said.

Rep. Edward J. Markey, ranking Democrat on the House Commerce telecommunications subcommittee, also criticized the separate division approach.

The plan "will provide an open invitation to engage in a regulatory arbitrage that shifts money and transactions around the bank's corporate structure in order to avoid regulatory firewalls or obtain favorable capital treatment," the Massachusetts lawmaker said.

The regulators testifying Tuesday, who included Federal Reserve Board Chairman Alan Greenspan and Federal Deposit Insurance Corp. Chairman Ricki Helfer, did not touch upon the question of whether banks should be allowed to affiliate with insurance underwriters.

However, Gary Hughes, who testified on behalf of the American Council of Life Insurance, said an amendment being worked on by Commerce Committee staff members to allow banks and insurance companies to affiliate was "totally unacceptable."

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