15 VI. Other corrections. Scope of Operating Subsidiary Activities The Fed paper states, “The only activities that the Amendment would prohibit operating subsidiaries from conducting are underwriting non-credit related insurance, real estate investment and development, and merchant banking.” The paper argues that the financial-in-nature standard for subsidiaries would allow them to “conceivably engage in a variety of commercial activities,” including the ownership of television stations. This assertion is simply incorrect. The Treasury proposal (and the LaFalce Amendment) would prohibit a subsidiary from conducting non-financial activities, and the financial-in-nature standard is no broader for subsidiaries than for affiliates. What the Treasury proposal seeks is parity in financial activities between subsidiaries and holding company affiliates. Even if Congress decides to permit bank holding companies to engage to any extent in non-financial activities -- either through a basket or a unitary thrift structure -- none of the proposals would extend this authority to subsidiaries. Oversight The Fed paper argues (p.

4) that while the Federal Reserve must defer to the SEC, state insurance authorities and other functional regulators in supervising functionally regulated holding company affiliates, comparable provisions do not exist in the LaFalce amendment with respect to OCC’s authority over functionally regulated subsidiaries of national banks. We strongly support, and our proposal provided for, functional regulation of securities and insurance activities, regardless of whether these activities are housed in subsidiaries or affiliates of banks. Conclusion On May 8, 1998, Chairman Greenspan told the Wall Street Journal that the question of subsidiaries “appears to be a very small issue, but it will determine the financial regulatory structure of the United States for the next generation." We wholeheartedly agree. .