Greenspan Backs Banks’ Move Into Securities : Finance: He also endorses insurance sales but opposes proposals to allow commercial and industrial companies to buy banks.

Federal Reserve Board Chairman Alan Greenspan on Tuesday endorsed the movement of banks into the insurance and securities businesses, but strongly criticized more ambitious proposals to allow commercial and industrial firms to buy banks.

The Fed chief, always a powerful and influential figure in shaping congressional opinion, allied himself with House Banking Committee Chairman Jim Leach (R-Iowa) in seeking an expanded role for banks in the fast-growing financial services market, while still preserving the traditional barriers between banking and general commerce.

Leach’s legislative proposal “provides realistic reform,” Greenspan told a hearing of the Banking Committee. But he warned it “would be prudent to delay” a mingling of banking and commerce “until we have gained some actual experience” with greatly expanded bank operations.

He placed himself in opposition to the proposals by Senate Banking Committee Chairman Alphonse M. D’Amato (R-N.Y.) and others to open all the doors to access in the banking world, allowing virtually any big company to buy a bank.

Greenspan said he wants banks to find new and profitable businesses, but he insisted on maintaining the Fed’s key regulatory role to assure a stable financial system.

The Clinton Administration is backing an expansion of bank activities as well, but its blueprint drew fire Tuesday from both Leach and Greenspan.

Leach, mindful of the legislative bailout under which taxpayers will spend more than $150 billion to pay for savings and loan failures of the past decade, wants strong “fire walls” to prevent putting public funds at risk. If banks are granted new powers, they should be handled by special, separate units created to manage insurance and securities underwriting, according to Leach.

The collapse of Barings, a major British investment bank, “demonstrates the problematic nature of conducting activities in a bank subsidiary and shows how quickly an operating subsidiary can bring down a parent,” Leach said.

The Clinton Administration would allow bank holding companies to carry out the expanded businesses directly through their banking subsidiaries. Leach insists that these potentially risky new ventures should be carried out through separate securities subsidiaries to provide “the greatest insulation for insured depository institutions and the greatest protection for taxpayers.”

Risk to the taxpayers was a common theme expressed by ambivalent members of the Banking Committee, who want to tear down the traditional walls between banks and other businesses but are somewhat apprehensive.

“If Barings was a United States bank, right now the taxpayers would be at risk,” said Rep. Charles E. Schumer (D-N.Y.).

“I am utterly amazed that the Administration would go further than the Leach bill,” said Schumer, normally a reliable ally of the White House. “How can we be sure some rogue trader will not cause billions of dollars in losses?”

Under the Leach plan, the trading in derivatives that brought down Barings would have been handled in a securities subsidiary separate from the bank itself.

Greenspan applauded the Leach bill as having “reasonable fire walls and other prudential limitations.”

On a piecemeal basis, some banks are already involved in marketing insurance and in the underwriting and sales of stock and bonds. But the Administration wants a repeal of the Glass-Steagall act, the Depression-era legislation that separated commercial banking from securities.

Treasury Secretary Robert E. Rubin said he foresees an environment in which banks, insurance companies and brokerage firms can enter each other’s businesses through mergers and acquisitions.