WASHINGTON - Banks scored a victory Thursday as House Banking Committee Chairman Jim Leach rewrote his Glass-Steagall reform bill to allow certain securities activities to be housed within the insured institution.

Rep. Leach's original bill would have forced banks to move all securities activities into separately capitalized subsidiaries, including such operations as mortgage-backed securities underwriting that are now permissible for banks.

"This is extremely important, because it allows you to continue to do things you can do today in the bank without having to make costly changes," said Edward L. Yingling, executive director for government relations at the American Bankers Association.

Meanwhile, with the committee scheduled to begin voting on Glass- Steagall reform on Tuesday, six large commercial and investment banks issued statements endorsing the Leach measure.

The firms, which include Bankers Trust New York Corp., J.P. Morgan & Co. and Goldman, Sachs & Co., praised the Leach bill for "modifying restraints that are inconsistent with today's economic, technological, and competitive realities." Salomon Inc. and CS First Boston also signed the document, while Morgan Stanley Group Inc. signed a separate letter.

The updated Leach bill would permit the sale and underwriting of bank- eligible securities only within a "separately identifiable department," which would be regulated by the Securities and Exchange Commission.

The revamped Leach bill, which will be the vehicle for Tuesday's deliberations, did not give any ground on the contentious issue of allowing insurance companies to affiliate with banks.

At a press briefing Thursday, a top committee aide said that while an insurance provision could "be worked in very easily" to the bill, it would be included only if bankers and insurance groups could work out a deal among themselves.

"We'd be happy if the big deal was struck, but ... (we can't) risk starting a war between industry groups which will divide the membership," he said.

The latest version makes a number of other substantial changes to the prior version of Rep. Leach's bill.

Holding companies with a small proportion of bank assets would be subject to limited reporting and examination requirements and minimal approval requirements for entering into new activities.

The new Leach bill would also allow uninsured U.S. branches of foreign banks to be treated as wholesale banks. The measure originally treated such foreign bank branches as if they were insured by the Federal Deposit Insurance Corp., thereby subjecting them to more stringent firewalls.

The Banking Committee aide said that this provision was changed to address "serious threats of retaliation overseas" if foreign bank branches were not allowed to become wholesale banks.

Under the latest version of the bill, the Fed would be required to take into account "reasonably expected" changes in the marketplace and in technology when deciding which activities are "financial in nature."

"All of the new technologies that are being brought into the marketplace are just making lines between businesses immaterial," said Anthony Cluff, executive director of the Bankers Roundtable. "It's all happening so fast that you need that kind of flexibility in a regulatory framework."

The Fed would also be required to take into account activities approved for U.S. banks operating overseas.

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