When this Merrill Lynch executive goes to Washington, he takes experience gained from years inside the Beltway.

Yet John G. Heimann, who served as comptroller of the currency during the Carter administration, is now chairman of global financial institutions at Merrill.

In recent weeks, he's been an aggressive lobbyist for the removal of walls between the banking, insurance, and securities industries. In testimony last month before Congress, Mr. Heimann advocated creating an "umbrella" supervisor to coordinate the efforts of various industry regulators.

As Merrill's top global executive, Mr. Heimann has a simple premise: to maintain global preeminence, U.S. financial companies need fewer restrictions on entering new businesses.

His opinion is not unusual, but his perspective may be.

Mr. Heimann, 68, joined Merrill in 1984 as vice chairman of capital markets. From 1988-90, he served as chairman of the executive committee for Merrill Lynch Europe/Middle East.

The New York City native and Syracuse University graduate started his career in 1956 at Smith Barney and joined E.M. Warburg Pincus & Co. in 1967 as a senior vice president and director.

In 1975 he was superintendent of banks for the State of New York. While comptroller of the currency, from 1977-81, Mr. Heimann served on the boards of the Federal Deposit Insurance Corp. and Federal National Mortgage Association.

American Banker recently caught up with Mr. Heimann at Merrill Lynch's conference center in midtown Manhattan.

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In your testimony to Congress, you urged regulation along product lines. What's the advantage to that?

HEIMANN: With the advent of technology-and increasing sophistication of both the providers of financial services and the users-there has been the creation of products which cut across traditional lines.

You have securities companies providing bank-like products, though they're not called checking accounts.

You've got to have a system by which a product cannot go into one of the separate functional regulators that has a more benign regulatory climate than another.

If it's a product that can be anyplace, you want to make sure you don't have product arbitrage-people who invent something, look for benign regulatory climate, then stick it in there because it's more profitable and it's easy for them to do.

Can you cite an example of one regulator being more benign than others?

HEIMANN: It's not that regulators are easier, per se. It's just that there are different rules applying historically to banks, insurance, and securities companies.

Insurance regulation is vastly different from securities regulation, and for good reason. Insurance products are long-term savings products, based on actuarial tables, and securities products tend to be short-lived.

Are you proposing a hierarchy of regulators?

HEIMANN: That's right. If a functional supervisor is doing his or her job, a problem should never rise to the oversight supervision, or the highest regulatory level. An oversight supervisor's role really should be limited to issues such as systemic risk, safety and soundness of the whole- not day-to-day issues.

Do some businesspeople and regulators think "umbrella supervision" is risky?

HEIMANN: There's a concern with umbrella supervision because right now no one knows what it means. That's very understandable.

Will an umbrella supervisor be able to impose capital requirements on the holding company? That's one issue.

Will an umbrella supervisor be responsible for approving acquisitions? The answer should be no.

Should the Fed regulate securities firms?

HEIMANN: If we have functional regulation, securities companies should be overseen by the Securities and Exchange Commission.

The question is who will be the oversight regulator. There are really only two choices for oversight regulator: One would be made up of all the regulators-which is the most logical approach. That would consist of Fed, OCC, SEC, Treasury. If that's too confusing, it could be just the Fed.

Why is regulatory reform so important to Merrill Lynch?

HEIMANN: There's an unevenness of commercial banks being able to be in our business and we are not able to be in theirs.

Right now, the Big Three American investment banks (Merrill Lynch; Goldman, Sachs & Co.; and Lehman Bros.) do about 30% of debt and global equity underwriting. It can't be in the national interest to see the ability of national securities firms decrease.

What's your position on commerce and banking?

HEIMANN: There are two issues.

Historically, the view is anathema-I'm just using these names, I'm not picking on them-GM owning Chase, IBM owning JP Morgan. There are lots of reasons people are oppposed to that. It's not only the consolidation of economic power it could represent but extending moral hazard privileges to the owning corporation.

Second issue: Banking owning commerce. That's the old German tradition, where Deutsche Bank owns 25% of Daimler-Benz.

Those two issues have to be parsed to make sense of the debate.

Right now, a financial institution can buy up to 4.9% of anything. The issue is whether that can be expanded and is it prudent or not.

In my view, issues like merchant banking are critical to capital markets operation. In fact, merchant banking is a financial activity, so I don't think that should be included in these restrictions.

Can you give examples?

HEIMANN: Merrill Lynch has helped create First USA, Bloomberg, and Teleport. Participation of Merrill Lynch was critical in their being formed. Our investments were relatively small, but it was the use of their services that helped to propel them into successful enterprises. Obviously the entrepreneur did it, Merrill Lynch didn't manage it, didn't control it, but we were the major customer.

That's an integral part of our business.

Will the marketplace be the ultimate regulator?

HEIMANN: The marketplace has really determined the shape and scope and reach of financial system. It's been supervisors and regulators that may have in some way impeded that.

Users of financial services demand more and more service, better products, at a lower cost. We have a rapidly evolving, sophisticated financial system with a supervisory system that was designed-at least in the United States-in the 1930s for the problems in the 1920s.

Can we expect more brokerage-bank mergers?

HEIMANN: Yes. They will do that two ways: purchase or poach. Whether these purchasers will be foreign or domestic, I can't answer that.

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