Operating subsidiaries are the optimal structure for banking companies, because they are safer than universal banks but more efficient than holding companies.

That's the conclusion of Bernard Shull and Lawrence J. White of New York University's Stern School of Business. In a paper to be published in the May issue of the Journal of Banking Law, they compare the three structures to determine which one offers the most efficiency with the least amount of risk and government subsidy.

They find that universal banks are the most efficient but pose the greatest risk to financial stability because all activities are conducted inside the bank. Both the holding company and operating subsidiary are safer, but the holding company is slightly less efficient, because it requires more firewalls to separate banking and nonbanking activities.

"The op-sub structure seems to provide the marginally superior trade- off," they write.

For a copy of "Of Firewalls and Subsidiaries: The Right Stuff for Expanded Bank Activities," call 212-998-0880.

Major industrialized countries should establish an international tribunal to resolve electronic payment and settlement disputes, says Barbara A. Good, a Federal Reserve Bank of Cleveland payment system specialist.

The organization could be modeled after the European Central Bank and could be staffed by rotating representatives of central banks and securities regulators in the G-11 countries, she writes.

She also finds that supervision of electronic money would be easier if governments prevent nonbanks from issuing these products.

"Without worldwide financial institution and government support for product standards and regulations, these new electronic money instruments could continue to be only an adjunct payment method rather than a serious replacement for cash," she writes.

For a copy of "Electronic Money," call 216-579-3079 or visit www.clev.frb.org/research.

Exempting the first $200 of interest and dividend income from taxes would boost savings among low- and middle-income consumers, writes Shahira E. Knight, an economist for Congress's Joint Economic Committee.

Ms. Knight does not estimate how much savings would increase. But she says half of taxpayers with interest income and 35% with dividend income would no longer pay taxes on those gains. Also, the proposal would reduce the tax liability of those in the 15% bracket by 0.86% and those in the 36% bracket by 0.19%.

For a copy of "The Effects of Allowing an Interest and Dividend Exclusion" call 202-224-5171 or visit www.house.gov/jec/.

Electronic trading of futures is likely to grow significantly but will not completely replace the pits where traders shout out bids on contracts.

Asani Sarkar and Michelle Tozzi of the Federal Reserve Bank of New York write that electronic trading of futures and options will grow because the system is more efficient and less expensive than hiring traders to shout out orders. Also, European monetary union will increase demand for electronic access to U.S. futures exchanges, they said.

Still, they predict the trading pits will continue to handle actively traded futures and options, although some of the order-taking will be computerized.

For a copy of "Electronic Trading on Futures Exchanges" call 212-720- 6134 or visit www.ny.frb.org/rmaghome/curr_iss/index.html.

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