The Office of the Comptroller of the Currency is expected by yearend to allow a national bank operating subsidiary to underwrite securities for the first time.

Sources involved in the application said an April 8 request by Zions First National Bank, Salt Lake City, to underwrite municipal revenue bonds through an operating subsidiary would be the first approved under the OCC's controversial "op-sub" rule.

In seeking new powers, Zions followed NationsBank, which filed the first of two requests under the rule March 26. NationsBank proposed entering the real estate development and lease financing businesses through direct subsidiaries.

"Ours is the easiest of the three applications," said Zions president and chief executive Harris H. Simmons. "It is a simple extension of what we are already doing, and muni revenue bond underwriting is in our view a relatively noncontroversial activity."

The OCC said on Dec. 31, 1996, that national banks may offer through operating subsidiaries services that would be banned to the parent bank. The agency worked on the rule for more than two years, deferring to lawmakers who were considering financial modernization legislation. The rule was issued Nov. 20 after Congress adjourned.

Lawmakers have criticized the "op-sub" rule as a risk to taxpayers and an attempt to expand bank powers without congressional approval. That is why the OCC has taken so long to act on these applications. "This process is just more political and controversial than usual," said a source involved in the NationsBank applications.

But with Congress set to recess in early November, the time is ripe for action on the applications, said Karen Shaw Petrou, president of ISD/Shaw Inc. "Congress really won't effectively get back up to speed until March, giving the OCC and the banking industry a significant period to get some things done," Ms. Petrou said.

While the NationsBank requests were filed first, real estate development - a risky business that led to massive losses in the thrift industry - is considered far more controversial than municipal bond underwriting.

Adding to the controversy surrounding the NationsBank request is the fact that Comptroller Eugene A. Ludwig attended a May 13 White House meeting including the banking company's chief executive, Hugh L. McColl, Democratic fund-raisers, and President Clinton. Consequently, Mr. Ludwig recused himself from any action on the NationsBank applications, delegating the decision to Chief Counsel Julie L. Williams.

More importantly, municipal revenue bonds do not carry the stigma that real estate development does. Banking companies may already underwrite bonds through section 20 holding company affiliates; banks are banned from developing real estate.

"There is no tinge of disrepute surrounding muni bonds," Ms. Petrou said.

The new power requested by Zions is a small step from a business it already conducts - general obligation bond underwriting.

General obligation bonds are backed by the full faith, credit, and taxing power of the issuing municipality; but revenue bonds are backed by an income stream from a specific project.

Lacking the ability to underwrite revenue bonds, Zions' municipal finance business could slip away, Mr. Simmons said.

"We already have a lot of relationships with municipal issuers, but increasingly they are financing themselves with revenue bonds," Mr. Simmons said. "The fact that we finance municipalities but can't offer revenue bonds is endangering this part of our franchise."

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