WASHINGTON - Former Federal Reserve Chairman Paul A. Volcker on Wednesday downplayed the need for the strict separations between an insured bank and a securities affiliate contained in House Banking Committee Chairman Jim Leach's Glass-Steagall bill.

Mr. Volcker, who still carries considerable weight on Capitol Hill, recommended making the firewalls between a bank and a securities affiliate as "light as practical."

"Who would want to hold these two kinds of business operations if there is no connection between them at all? It defeats the purpose," Mr. Volcker said.

"There are going to be synergies . . . and referrals between the two arms" of the holding company, the former central banker added.

In place of rigid firewalls, Mr. Volcker suggested strict oversight of holding companies by the Fed, something that the Iowa Republican does provide for in his legislation.

However, the chairman's bill would also create strong firewalls to insulate an insured institution from the riskier activities that may take place in a securities affiliate.

Mr. Volcker's stance on firewalls surprised Rep. Marge Roukema, chairman of the subcommittee on financial institutions.

"I'm a little taken aback by your description of firewalls," said the New Jersey Republican, who has expressed concerns about the ability of firewalls to protect an insured depository from an ailing affiliate.

Mr. Volcker's testimony came during the House Banking Committee's final hearing on Glass-Steagall reform. Rep. Leach announced that the committee will vote on his industry modernization bill on May 9.

Rep. Leach added that he hoped to have the legislation on the House floor for a vote by the end of June.

A provision in Rep. Leach's bill to allow the creation of an uninsured wholesale bank as a subsidiary of an investment company holding company drew criticism from Mr. Volcker.

"Why should this particular class of institution be free of federal deposit insurance when it will be competing side by side with banks that have to pay deposit insurance premiums?" Mr. Volcker said.

Rep. Leach responded by saying that the wholesale bank provision was created in part to promote a "two-way street" that would allow equitable treatment for both investment companies and banks that wish to become holding companies.

Rep. Richard Baker, R-La., garnered tepid support from Mr. Volcker on a plan he is mulling to allow institutions to limit their deposit insurance coverage in exchange for the ability to engage in more risky activities.

In a brief interview afterwards, Rep. Baker said he will "try to forge whatever could be politically achievable" during the coming month before Rep. Leach's bill is marked up.

Rep. Baker also queried Mr. Volcker about expanding banks' abilities to engage in insurance underwriting, to which the ex-Fed chairman responded: "My inclination is that it ought to be (allowed) . . . but it's not a practical possibility this year."

However, Mr. Volcker said he would not support allowing banks to affiliate or be owned by commercial or industrial companies.

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