WASHINGTON - Industry executives, critical of a section of the Gramm-Leach-Bliley Act of 1999 that would require large banks to issue and maintain highly rated public debt, are lobbying the Office of the Comptroller of the Currency to interpret the law as loosely as possible in a final rule expected in mid-March.

National banks that want to take advantage of the new powers granted by Congress must house them in financial subsidiaries. But before any of the nation's 50 largest banks may do that, they must issue and maintain unsecured, long-term debt and a rating in the top three categories as defined by nationally recognized ratings agencies. (The law also requires the next 50 largest banks to meet a "comparable" standard, which has not yet been proposed.)

Though PNC Bank in Pittsburgh meets the standard, its chief regulatory counsel, James S. Keller, called it "perverse" to require a bank to take on debt that its managers do not believe is needed. "It is ridiculous for any bank to be required to issue debt - or not to retire debt, if that would be the right thing to do - just to meet this provision," he said.

"There seems to be little justification for forcing a bank to issue or refrain from retiring debt simply to enable it to engage in expanded financial activities," Michael E. Bleier, general counsel at Pittsburgh-based Mellon Bank, added in a comment letter on the comptroller's rule proposal.

Mr. Bleier recommended letting banks that do not want to take on debt meet the requirement by having a ratings agency certify that their debt would be highly rated if it were issued.

But that suggestion did not make much of an impression on OCC Chief Counsel Julie L. Williams, who said in an interview Wednesday that the law leaves her little leeway for interpretation.

"For the banks in the top 50, the statute says that the debt has to be outstanding," Ms. Williams said. "The statute really does answer a lot of the key qualifying issues; there really aren't a whole lot of gaps to be filled in by regulation."

The debt requirement should not be onerous to most of the banks that are required to meet it because most of them already have debt that would qualify. Of 27 comment letters the OCC has received on the proposal, which was made Jan. 20, only three - from PNC, Mellon, and the Financial Services Roundtable - directly addressed the debt issue.

Comments were due Feb. 14, and the rule is expected to be completed before March 13, the day this section of the law is to take effect.

Lawmakers envisioned the debt requirement as a layer of market discipline that would supplement the work of bank regulators. However, experts in the bank-debt market question whether using the type of debt specified in the law would accomplish this goal.

One of the few questions left open to OCC interpretation was the meaning of "long-term" debt, which it defined as having a maturity of 360 days or more. "We've talked to a variety of people who are experts in the way capital and debt markets work, and they thought that was a fair place to draw the line between short- and long-term, bank-issued debt," Ms. Williams said.

But some observers have argued that a 360-day maturity is insufficient to apply any significant market discipline.

"Senior debt of a bank that is short-term in nature, which I consider 360 days to be, that's not really a fair test. It's not asking the market to take a stand," said Jay M. Weintraub, a managing director at Merrill Lynch & Co. who follows bank fixed-income obligations.

The market's assessment of a bank's riskiness would be better gauged by debt with a longer maturity or a subordinated structure, he said.

An early draft of the law would have made banks float subordinated debt, which leaves creditors little hope of repayment in the event of default, and therefore requires issuers to pay higher interest rates.

But the legislation was changed to define eligible debt as unsecured long-term debt that is "not supported by any form of credit enhancement, including a guarantee or stand-by letter of credit" and not held "in whole or in any significant part" by a creditor who has a connection to the institution.

The debt requirement may be a first step toward greater market participation in the assessment of individual banks' health. Many regulators, particularly Federal Reserve officials, have endorsed requiring banks to issue subordinated debt as a way of introducing market discipline to bank supervision.

The Gramm-Leach-Bliley Act requires the Fed and the Treasury Department to complete a study on subordinated debt by May 2001.

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