The Federal Reserve and the Treasury Department appear to be far apart over which agency would regulate the new financial services firms that would evolve if the bill to allow banks, insurance companies and security firms to enter each other's new businesses passes Congress.

The Fed favors the banks forming holding companies; the Treasury favors both holding companies and directly owned operating subsidiaries. The Treasury has threatened to urge President Clinton to veto the bill if it ever reaches his desk.


House Republican leaders have set May 13 as the date when they aim to bring a controversial overhaul of U.S. banking and financial laws to a vote by the full House.

Federal Reserve Chairman Alan Greenspan cautioned last week that if Congress allows new bank powers to be placed in operating subsidiaries under sweeping financial modernization legislation, this would make the Comptroller of the Currency a supervisory monopoly, to the detriment of the dual banking system.

Answering audience questions after a speech to the Chicago Fed Bank's annual conference, Mr. Greenspan said that while he couldn't argue such a plan would do terrible damage to either the banking or regulatory structures, ''it's just that I think the risks involved in both are far too high not to try to persuade the Congress otherwise.''

He said the Fed is urging Congress to pass financial modernization legislation that would put any new bank powers - such as insurance - into a bank holding company affiliate. The Fed regulates bank holding companies.

The Fed potentially stands to lose a good deal of its regulatory authority if Congress passes legislation to place new bank powers into an operating subsidiary.


John Boehner, R-Ohio, the fourth-ranking Republican in the House, said, after a closed-session meeting he and others had with the Federal Reserve chairman that Mr. Greenspan made a ''very strong case'' for enacting financial services modernization as soon as possible, and that Mr. Greenspan stressed the importance of having policy-makers elected by the public, rather than regulators, making decisions about the shape of the financial services industry.

U.S. Treasury Secretary Robert Rubin, meanwhile last week, repeated he will recommend President Clinton veto the House banking reform bill if the bill were presented to the president in its current form, according to a letter he sent to House Speaker Newt Gingrich.

Mr. Rubin favors organization of the new banking-insurance firms into operating subsidiaries as a special class of commercial bank subsidiaries that can be used to enter financial businesses that are off-limits to the bank itself. Operating subsidiaries are regulated by the Office of the Comptroller of the Currency, a quasi-independent arm of the Treasury Department that regulates most large U.S. banks.

House Banking Committee Jim Leach, R-Iowa, said members of his committee plan to offer an amendment when the bill comes to the floor that will attempt to bridge the gap between Treasury and the Fed on the subsidiary vs. holding company issue.

This amendment would permit commercial banks to use operating subsidiaries to engage in a wide range of nonbanking activities, but exclude certain activities and would limit the ability of the Comptroller of the Currency to determine what the permissible activities would be.


Mr. Leach said the Fed favors the bill as it is presently crafted. His amendment would be a compromise intended as a ''gesture'' to the Treasury, he said, but it would not be as strong as the Treasury would like, and too strong for what the Fed wants.

He did not say which activities would be excluded, but he said the amendment would be based on a version of the bill that passed the Banking Committee last June. That version excluded insurance underwriting, merchant banking and real estate development from what operating subsidiaries can do.

For the past 20 years, Congress has failed nearly a dozen times to pass the controversial reforms because of differences among lawmakers, industry groups and turf battles engaging regulators.

''This legislation has faced a long, very long, uphill climb,'' said House Commerce Committee Chairman Thomas Bliley, a Republican from Virginia.

But recently announced mergers, including the planned union between Citicorp and brokerage and insurance giant Travelers Group Inc., put financial services reforms back on the congressional agenda. On March 31, House leaders were forced to withdraw the legislation to avoid defeat.

''We do need to be competitive with the rest of the world,'' said House Rules Committee Chairman Gerald Solomon, a Republican from New York. His panel began setting the terms of debate for the contentious legislation.

While Democrats and Republicans have agreed on certain provisions aimed at protecting consumers, many key lawmakers, including some Republicans, say the legislation would put bigger banks at a disadvantage to financial conglomerates.