The Treasury Department is misunderstood.

Its opponents claim the Clinton administration's financial reform plan would let commercial conglomerates take over the financial services industry. But that's not what Treasury officials intend, at all.

Treasury Under Secretary John D. Hawke Jr., who is heading the administration's effort, has said repeatedly that legislation should not lead to such combinations as Chase Manhattan with Microsoft.

Still, he insists that some affiliation must be allowed between banks and nonfinancial companies.

How do these two stances square?

Banks are not the only players with a stake in financial reform. Mr. Hawke has said legislation cannot pass without the support of other financial service companies.

If the eventual bill bars cross-industry mergers, securities firms and insurance companies would oppose it. That's because many already have ties with nonfinancial concerns-businesses that would have to be divested if a bank were bought.

In a speech scheduled at the Exchequer Club here Wednesday, Mr. Hawke is expected to reveal the administration's reform plan. (It was due to Congress by March 31.) So far this year, three pieces of reform legislation have been introduced. Rep. Marge Roukema, R-N.J., would let banking companies devote 25% of their business to nonfinancial operations.

That's close to some of the ideas the Treasury has been floating to lawmakers and financial lobbyists. While no number has surfaced, it's clear that the administration will recommend bank holding companies be allowed to invest a limited amount in nonfinancial businesses.

To appease its fiercest critics, the Treasury has also offered to prohibit mergers between banks and the 1,000 largest commercial firms.

Though Mr. Hawke has been tight-lipped of late, in speeches this year he had argued that top financial firms should not be prohibited from owning a bank simply because they have commercial ties.

Financial firms argue they must get into banking to compete effectively. Banks, they say, have an unfair advantage because the courts and regulators have let them into securities and insurance.

The banking industry's reaction to Mr. Hawke's initiative has ranged from lukewarm to hostile. But to the rest of the financial services industry, some breach in the wall is crucial.

No wonder. Here's what they now would have to give up to buy a bank: Insurance company USAA owns the San Antonio Spurs basketball team and Six Flags Over Texas. American Express Co. operates a travel agency as well as Food and Wine magazine. Merrill Lynch & Co. owns Bloomberg Publishing.

There's more. Salomon Brothers Inc. runs Phibro Inc., an oil refining company. Fidelity Investments owns limousine maker Boston Coach. John Hancock owns a timber company, a health maintenance organization, and a television station.

The Treasury sees no reason for these companies to divest those businesses in order to buy a bank.

John G. Heimann, chairman of global financial institutions for Merrill Lynch, told lawmakers at a hearing last week that his company's stake in Bloomberg is "vital to Merrill Lynch's own business activities."

He urged House Banking Committee members to recognize "the need for some entry for financial services holding companies into nonfinancial areas."

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