Magazine article American Banker

Washington People: Comptroller-to-Be Calls Op-Sub Worries Overblown

Magazine article American Banker

Washington People: Comptroller-to-Be Calls Op-Sub Worries Overblown

Article excerpt

Comptroller-in-waiting John D. Hawke Jr. cannot understand why so many people are afraid to let national banks conduct new businesses in operating subsidiaries.

"The op-sub issue has been blown out of proportion," the Treasury Department's under secretary for domestic finance said in an interview last week.

Financial reform legislation pending in Congress would require national banks to subtract any investment in an operating subsidiary from their capital. That ensures any losses suffered by the subsidiary would not affect the bank's safety.

In addition, Mr. Hawke said, requiring banks to dip into capital to fund operating subsidiaries would limit their use.

"People have not focused on the effects of the capital haircut," he said. Most banks, he predicted, would continue to use bank holding company subsidiaries.

"We've done an analysis that shows, with one or two minor exceptions, no national bank could acquire any of the 50 largest insurance companies as an operating subsidiary," Mr. Hawke said. "Fear that holding companies are going to disappear are not grounded in fact."

Treasury and the Federal Reserve have been at loggerheads for months over legislation that would require new bank powers to be housed in holding company subsidiaries. The bill would allow banks, insurance companies, and securities firms to combine.

The Fed, with oversight over holding companies, supports the bill by arguing it is a safer and fairer way for banks to enter new businesses.

Treasury opposes the legislation, saying banks ought to have a choice in how they structure their operations. An arm of Treasury, the Office of the Comptroller of the Currency, regulates national banks.

Last month, President Clinton nominated Mr. Hawke to succeed Eugene A. Ludwig as comptroller. The Senate Banking Committee is expected to hold a confirmation hearing on the nomination next month. …

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