To the Editor:

The ever-colorful William Isaac ("Defense of Holding Company Act Is Based on False Assumptions," Feb. 23, page 7) dismisses the argument that repeal of the Bank Holding Company Act is a necessary precondition to allowing the common ownership of banks and commercial firms.

"If frogs had wings, they could fly," he said in clinching his argument. On this we can all agree.

Another common fact on which we all should be able to agree is that the bills introduced by Al D'Amato, chairman of the Senate Banking Committee, and Rep. Richard Banker, R-La., repeal the Bank Holding Company Act so that there can be a financial services holding company that could own a commercial firm. In other words, it opens the door to common ownership of Merrill Lynch, Chase, Prudential, and Honda.

The resulting conglomerate "frog" would be so big that, wings or not, the U.S. government would never allow it to go down. This is one field where Bill Isaac is an expert. His name is in the financial history books because of the bailout of Continental Illinois.

His assertion that the Change in Bank Control Act sufficiently protects national interests because the regulators must be "satisfied with the integrity, experience, and financial wherewithal of the acquirer" misses the point. Naturally, an acquirer will be in fine shape at the time of the acquisition. The danger occurs later, when the acquirer has financial problems.

Mr. Isaac also asserts "the bank and its owner would thereafter be subject to the most intensive supervisory regime known to mankind." However, the D'Amato and Baker bills provide for no regulation of the holding company, remove it as a source of strength for its bank subsidiary, and do not enhance one iota the supervisory regime with regard to the bank.

As those who followed previous debates will attest, there also is the very legitimate question of whether firewalls between subsidiaries of the same holding company will effectively isolate the depository institution sub from other affiliates that may be burning. In years past, Fed Chairman Paul Volcker and New York Federal Reserve Bank President Gerald Corrigan testified no.

May the debate continue. It is a very important one that goes to the heart of our future economic and financial system. And it should be broadened beyond Mr. Isaac. Kenneth A. Guenther Executive vice president, Independent Bankers Association of America, Washington

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