I. Introduction
Thank you for that introduction. I would like to thank Pam Green and members of the Maine Association of Community Banks and Maine Bankers Association for giving my firm and me this opportunity to be with you here today. Before starting I would like to introduce Ray Tiernan, a partner of mine who also is a New Englander. Following my talk either I or Ray will try and answer any questions which you may have.

I am here to discuss the national bank charter option with you, which recently has been of interest given the disparity in insurance activities which can be conducted by national banks and Maine-chartered financial institutions. As you know by now, the OCC recently issued significant guidance regarding a national bank's insurance agency activities in response to a notification filed by First Union Corporation on behalf of eight national bank subsidiaries seeking to establish an operating subsidiary to engage in a wide variety of insurance agency activities, as well as a general advisory letter which provides guidance to national banks on insurance and annuity sales activities. Because these issuances are discussed in a memorandum which we have prepared for you which generally discusses the powers of national banks and federal savings associations, I'm not going to specifically discuss the insurance powers of national banks. Rather, I'm going to talk a little more broadly about some of the other considerations which are relevant to a Maine-chartered financial institution in evaluating a conversion to a national bank and to being regulated by the OCC. Before discussing some of those considerations, however, I think it would be helpful to at least briefly outline the principal charter options which are available.

II. Available Charters
A. National Banks
National banks are stock corporations that are chartered under the National Bank Act for the purpose of engaging in the business of banking. As a matter of federal supremacy, national banks are subject to state law, such as state contract laws, only insofar as state law does not conflict with federal law. In certain areas, however, Congress has explicitly deferred to state law for the applicable limitation on the activities of national banks. A prominent example in this regard is the ability of a national bank to establish branch offices, which generally is evaluated by reference to the authority of state-chartered banks in the state or states in which a national bank is located.

The National Bank Act deals with the organization and corporate structure of national banks and sets forth in specific detail the corporate powers of national banks and various activities in which they may engage. By far the most important power of a national bank is the power to engage in the "business of banking" and "all such incidental powers as such shall be necessary to carry on the business of banking." Over the last 30 years the OCC and the courts generally have taken a broad reading of the incidental powers clause and not limited it by reference to a national bank's express powers. The OCC maintains in this regard that the incidental powers clause should be read to authorize national banks "to offer new products and services as a means of adapting to changes in the financial market place and the evolving, non-static nature of the business of banking" and that the determination whether an activity is part of the business of banking should be based on a "wide variety of factors," including (i) the financial nature of the activity, (ii) the similarity of the activity to express powers, (iii) the usefulness of the activity in carrying out express powers, (iv) the customary practices of banks, (v) the expectations of the community, (vi) governmental purposes and (vii) the convenience and needs of society's social functioning.

B. State Banks and State Savings Associations
1. State Law. State-chartered banks and savings associations derive their powers in the first instance from the state laws under which they are chartered and are regulated by state banking authorities (as well as by the FDIC, the Federal Reserve Board or the OTS, as the appropriate federal banking authority), rather than by the OCC. State banking laws vary widely and historically have authorized activities far beyond those permitted to national banks. This is the case in Maine. For example, Maine-chartered savings banks and savings and loan associations are authorized under state law to invest up to 100% of their capital or surplus in common and preferred stocks of corporations, whereas national banks generally may not invest in equity securities. Another example is that a Maine-chartered savings bank is authorized to acquire real estate or interests in real estate which is located within Maine for investment purposes and may develop or otherwise deal in real estate and interests in real estate so long as the book value of the real estate, together with real estate invested in offices and facilities, does not exceed 60% of its total capital or surplus. National banks have no comparable authority to invest in real estate.

2. Federal Law. The disparity between the activities of national banks and state banks, including state savings banks, was significantly narrowed by Section 24 of the Federal Deposit Insurance Act, which was enacted in 1991, and the FDIC's regulations thereunder. Section 24 and the FDIC's implementing regulations include three types of prohibitions on the investments or activities of state-chartered banks.

a. Insurance Underwriting. State-chartered banks and their subsidiaries generally are prohibited from engaging in insurance underwriting except to the extent permissible for national banks. The most significant area in which national banks can underwrite insurance is "credit life, health and accident insurance," which has been authorized by the OCC under the incidental powers clause because it provides banks security for loans and is the functional equivalent to providing borrowers with debt cancellation contracts, an activity in which national banks have been long engaged. Other areas in which national banks have acted as principal in the insurance area is issuing standby letters of credit for municipal bonds, which also is known as municipal bond guaranty insurance, and underwriting guaranty insurance on debt obligations issued to purchase assets of certain federal agencies.

b. Equity Investments. State-chartered banks may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. FDIC regulations list seven exceptions to this restriction, including majority-owned subsidiaries (which are subject to activities limitations), certain qualified housing projects and common and preferred stocks listed on a national securities exchange and shares of a registered investment company to the extent that the state bank was authorized to invest therein as of September 30, 1991 and is permitted by the FDIC following specified notice and other requirements.

c. Activities Restrictions. State-chartered banks and their majority-owned subsidiaries also may not engage as principal in any "activity," which is defined extremely broadly in FDIC regulations, that is not permissible for a national bank, and their majority-owned subsidiaries similarly may not engage as principal in any "activity" which is not permissible for a subsidiary of a national bank, unless in either case the FDIC determines that the activity would pose no significant risk to the deposit insurance fund of which the state bank is a member and the state bank is, and continues to be, in compliance with applicable regulatory capital requirements. FDIC regulations set forth various as principal activities which the FDIC has concluded do not pose a significant risk to the deposit insurance funds, and which therefore may be conducted by a state bank which is otherwise authorized to do so by applicable federal and state law and which meets and continues to meet applicable regulatory capital requirements. These activities include activities that have been found by the Federal Reserve Board, by regulation or order, to be closely related to banking for purposes of Section 4(c)(8) of the Bank Holding Company Act, even if impermissible for national banks.

Although Section 24 imposes significant limitations on state banks and is a significant blow to the dual banking system, its effects have been less drastic than otherwise would be the case as a result of the flexible manner in which the FDIC has utilized its authority to permit state banks to engage in activities which are not permissible for a national bank if it determines that the activity does not pose a significant risk to the deposit insurance fund. In the four and a half years ended April 30, 1996, the Board of Directors of the FDIC acted on 34 applications to directly or indirectly initiate or continue as principal an impermissible activity, approving 31 of them. During the same period, the FDIC's Division of Supervision acted on a total of 1,122 applications and/or notices to do the same or to retain grandfathered equity investments, of which only five were denied in whole or in part. In light of this experience, the FDIC recently proposed amendments to its regulations under Section 24 to adopt a notice procedure, in lieu of the current prior approval by application requirement, in the case of real estate investment, life insurance and annuity investment activities, provided the applicant state banks are highly-rated and well capitalized and meet certain other conditions and restrictions. In short, the FDIC has been very receptive to state banks' engaging in otherwise impermissible activities under Section 24 under appropriate circumstances.

Finally, it should be noted that the limitations imposed by Section 24 of the Federal Deposit Insurance Act on state banks do not apply to state savings associations. Section 28 of the Federal Deposit Insurance Act, however, generally limits state savings associations to the equity investments and as principal activities permitted for federal savings associations, unless the FDIC determines that an investment in the shares of a service corporation or the proposed activity would pose no risk to the affected deposit insurance fund.

C. Federal Savings Association
Another federal charter option is the federal savings association, which includes savings banks and savings and loan associations. Federal savings associations are mutual or stock corporations that are chartered under the Home Owners' Loan Act. Their original purpose was to encourage residential home finance and, as a result, federal savings associations are subject to several specific lending restraints which limit, among other things, the amount of their commercial real estate loans, commercial business loans and consumer loans. Although the lending authority of federal savings associations has been broadened in recent years, it does not approach the much wider range of lending activities permitted to national banks, which generally have no statutory restrictions on the types of lending activities in which they may engage. Federal savings associations do have broader authority than national banks in certain respects, however. For example, federal savings associations generally have nationwide interstate branching authority which is in no way dependent on applicable state law, unlike national banks. Federal savings associations also have expanded subsidiary powers. The authorized activities of service corporations of federally-chartered savings associations include, among other things, real estate development and real estate management for third parties, which are not authorized for national banks. In addition, service corporations of federal savings associations may engage in the sale on an agency basis of many types of insurance, including liability, casualty, automobile, life, health accident and title insurance (but not private mortgage insurance). Although its actions remain subject to possible judicial challenge, the OCC similarly has authorized for national banks general insurance agency activities for all types of insurance, with the exception of title insurance, which has not yet been successfully been permitted to national banks by the OCC notwithstanding efforts to do so.

The broader subsidiary activity authority of federal savings associations is not limited by Section 24 of the Federal Deposit Insurance Act, which applies only to state banks. However, under Section 28 of the Federal Deposit Insurance Act, federal (and state) savings associations generally may not establish or acquire a subsidiary, or conduct any new activity through a subsidiary, without providing prior notice to the FDIC. In addition, federal laws and regulations require that equity investments and loans to service corporations engaged in activities which are not permissible for national banks be deducted from capital. As a result, savings associations no longer engage in real estate activities on a large scale basis. Indeed, the reported real estate service corporation assets of savings associations decreased from $77.7 billion at the end of 1989 to $3.4 billion at the end of 1995.

Another significant factor regarding the thrift charter is that savings and loan holding companies which have only one federal or state thrift subsidiary which meets a qualified thrift lender test are not subject to activities restrictions. This result is in sharp contrast to bank holding companies, which are limited to the business of banking and activities which are deemed by the Federal Reserve Board to be closely related and a proper incident thereto, regardless of the number of their banking subsidiaries.

III. Considerations in Converting to a National Bank
With the foregoing framework in mind, we can consider some of the factors that a state-chartered institution should consider in evaluating a conversion to a national bank.

A. Regulatory Authority
By converting to a national bank a Maine-chartered bank in effect substitutes two banking regulatory authorities - the Superintendent and the FDIC - for one, the OCC. Whatever one thinks of the merits of particular federal and state banking agencies, this can result in savings in both the time and costs associated with applications and examinations, if for no other reason than the elimination of the state regulatory authority. There are several points to note here.

1. Expedited Review of Applications for Eligible Banks. One significant point is the progressive nature of the OCC's approach to applications and corporate activities, as reflected in the recently-adopted revisions to Part 5 of its regulations, which incorporate a risk-based approach to corporate applications and corporate activities of national banks. Under Part 5, different application procedures are keyed to the risk, novelty and complexity of the proposed activity or procedure.

National banks that qualify as "eligible banks" may receive expedited processing of many different types of applications. An "eligible bank" for this purpose must (i) be well capitalized under the OCC's capital guidelines, (ii) have a CAMEL rating of 1 or 2, (iii) have at least a "satisfactory" CRA rating and (iv) not be subject to specified enforcement orders. In general, filings by eligible banks will be deemed approved by the OCC after the close of the comment period, or if no comment period applies, 30 days after the filing is received by the OCC.

2. Types of Activities Covered. The types of activities which are covered by the new procedures include applications to engage in fiduciary activities; applications to establish or relocate branches (which do not include ATMs under recent legislation); applications by bank holding companies whose largest bank subsidiary is an "eligible bank" to charter a new national bank; and applications by state-chartered institutions that would qualify as an "eligible bank" to convert to a national bank. Two other areas are particularly noteworthy in this regard - business combinations and operating subsidiaries.

a. Business Combinations. One of the more frustrating areas for many banks in recent years is the nature of the application process for acquisitions of other financial institutions. One recent local example that illustrates this is Peoples Heritage Financial Group's acquisition of Mid-Maine Savings Bank in 1994. In this transaction Peoples Heritage sought to merge Mid-Maine into Peoples Heritage Bank and concurrently sell Mid-Maine's branch office in New Hampshire to its New Hampshire-based banking subsidiary. Various aspects of this acquisition required the approval of four different federal banking agencies, all of whom have their own forms and requirements, and the Superintendent. Legislation has made more sense of this overlapping authority in recent years, including most recently a change which eliminated bank holding companies which desire to acquire thrifts from having to obtain approval of the OTS and having to register as a savings and loan holding company upon consummation of the acquisition, but has not eliminated the cumbersome nature of acquisitions in many cases, which is to a certain extent inherent with four federal banking and thrift agencies and a dual banking system.

The OCC has attempted to simplify the application process for business combinations over which it has jurisdiction by expediting approval and streamlining the application process for certain types of mergers among "eligible" depository institutions in which the resulting institution is a well-capitalized national bank. Applications for these transactions generally will be deemed approved 15 days after the close of the comment period or 45 days after the OCC receives the application, whichever is later. Transactions which qualify for this expedited review and streamlined applications include (i) business combinations in which an acquiring eligible bank will be well-capitalized immediately following consummation of the transaction and the total assets of a target eligible institution are not more than 50% of the total assets of the acquiring bank and (ii) business combinations in which an acquiring eligible bank will be well-capitalized immediately following consummation of the transaction and the total assets of a non-eligible target institution do not exceed 10% of the total assets of the acquiring bank. Reorganizations of "eligible" depository institutions that are part of the same holding company also will receive expedited processing at the OCC.

Perhaps even more significant than the application process for business combinations are the differing standards of the federal agencies in the antitrust area. The HHI analysis used to varying extents by the federal banking agencies and the Justice Department to evaluate business combinations involving financial institutions from an antitrust standpoint was developed in 1984 to assess competition in a small town in Mississippi. But competition in financial services has changed immensely since that time, a fact which is perceived somewhat differently by each of the federal banking agencies. Currently, an important factor in structuring a business combination which has potential antitrust concerns under the standard HHI analysis is evaluating all possible means of avoiding the jurisdiction of the Federal Reserve Board, which utilizes the most restrictive approach to the HHI analysis, in favor of agencies such as the OCC, which is much less dogmatic in this area and much more inclined to consider the full panoply of competition experienced by banking organizations.

b. Operating Subsidiaries. The other area in which the application process has been most significantly affected by the revisions to Part 5 involves operating subsidiaries of national banks.

Under Part 5, an adequately capitalized or well-capitalized national bank may establish or acquire an operating subsidiary to engage in non-complex activities, or perform such activities in an existing operating subsidiary, by providing the OCC a notice within 10 days after acquiring or establishing the subsidiary or commencing the activity. Non-complex activities include, among other things, financial advice and consulting for the bank and its affiliates, acting as investment or financial advisor (not involving the exercise of investment discretion), data processing for the parent bank and its affiliates and selling money orders, savings bonds and travelers' checks.

If the proposed operating subsidiary activity involves more complex activities which are not eligible for the notice procedure, it still may qualify for expedited approval within 30 days after filing with the OCC of an application that includes, among other things, a complete description of the bank's investment in the operating subsidiary and the proposed activity. In order to qualify for expedited review the applicant must be an eligible bank and the subsidiary activity must be from a list which includes securities brokerage, investment advice, underwriting and dealing in bank-eligible securities, data processing for third parties and real estate appraisal services.

If the proposed activity is part of the business of banking, or incident thereto, or otherwise authorized by statute, but not permissible for the bank itself, expedited procedures are not available and an eligible national bank must apply for permission from the OCC, which will publish the proposal and request comment if it has not previously approved the activity. Because this aspect of the revisions to Part 5 potentially involves permitting national banks to do indirectly what they could not do directly, it generated much criticism from interest groups and others who were concerned that this authority will be used by the OCC to permit operating subsidiaries of national banks to engage in activities - such as underwriting bank - ineligible securities, underwriting title insurance, real estate brokerage activities, travel agency activities and other activities which are not authorized for national banks - which will further erode the statutory separation between banking and commerce. Although the OCC stated that it did not have any particular activities in mind in adopting the changes to the operating subsidiary regulation, its intention may be indicated by the safety and soundness safeguards adopted by it for operating subsidiaries engaging in activities which are not permissible for a national bank, which generally are similar to the safeguards used by the Federal Reserve Board in permitting bank holding companies to engage in securities underwriting activities under Section 4(c)(8) of the Bank Holding Company Act through so-called Section 20 subsidiaries.

In addition to a potentially more streamlined process to engage in various corporate activities and obtaining a regulator which historically has sought to keep the activities of national banks in step with changing practices in the marketplace, conversion to a national bank would reduce the time and expense associated with regulatory examinations, which perhaps is the most frustrating part about being a regulated entity.

Although substituting one banking regulator for two thus can have obvious advantages, the importance of a proximate, local state regulator should not be underemphasized. Many state regulators have been at the forefront of changes in banking laws and regulations in recent years, which is perhaps what best illustrates the benefits of the dual banking system. Moreover, in our experience state regulatory authorities can be a state bank's best advocate not only in terms of banking powers and activities, but in relations with federal regulatory authorities. There were many cases, for example, where state regulators were able to mitigate or decrease the enthusiasm of federal banking regulators for pursuing enforcement actions against state-chartered institutions in the heights of the problems experienced by the banking and thrift industries in recent years. There also are the intangible considerations of going from a big fish in a small pond to a small fish in a big pond. The OCC, whose closest regional office is in New York, is a nationwide regulator which regulates the largest banks in the country. It would be unrealistic to think that it always would give as much significance and attention to a state bank's problems and concerns as the Superintendent.

B. Powers
A state bank which evaluates a conversion to a national bank obviously must carefully consider the powers and authorities available to it in each form. Although the matter has not been definitively settled, national banks currently have a significant advantage over Maine financial institutions in regard to insurance agency activities. In other areas, however, Maine financial institutions have or potentially have broader investment authority than national banks. This is because while Section 24 of the Federal Deposit Insurance Act and the regulations of the FDIC thereunder have significantly narrowed the disparities that previously existed between the authorized investments and activities of national banks and state banks, they have not eliminated these differences. Indeed, as I have mentioned, the FDIC's regulations contain several exceptions to the investment and activities restrictions contained in Section 24 of the Federal Deposit Insurance Act, and thus state banks which are otherwise authorized to engage in such activities under applicable state and federal law may have the authority to invest in a broader variety of investments and engage in a wider range of activities than national banks. Moreover, it is significant to note that Section 24 of the Federal Deposit Insurance Act and the regulations of the FDIC thereunder do not limit state bank agency activities (as opposed to as principal activities). Thus, when Maine authorized Maine financial institutions to broker annuities by enacting Section 443(11) of Title 9-B, Maine banks could immediately commence such activities without restriction under Section 24. (The OCC determined by interpretive rulings that national banks also could broker annuities, which required years of litigation to resolve favorably for national banks.) Finally, it is significant to again note that the FDIC has been flexible in exercising its authority to permit state banks to engage in authorized activities which are not permissible for a national bank.

For several reasons, it does not appear that the advantages of the somewhat broader powers available to state banks are offset by the new authorities that may be available to national banks under the OCC's revised operating subsidiary regulation. First, no new activities have yet been authorized, and when they are there is a strong likelihood that they will be challenged in the courts. Second, the activities which are most talked about as being authorized by the OCC for operating subsidiaries - underwriting of bank-ineligible securities - are likely to be of interest to only the largest banking organizations. Third, it is significant to note that in determining the authority of state banks under Section 24 of the Federal Deposit Insurance Act the FDIC deems the term "activities permissible for national banks" to include not only activities authorized under any statute, but activities which are recognized as permissible "in regulations, offering circulars or bulletins issued by the OCC or in any order or interpretation issued in writing by the OCC." As a result, under the FDIC's regulations under Section 24 majority-owned subsidiaries of state banks will be able to take advantage of the modernization efforts of the OCC, assuming, of course, that the activities authorized by the OCC for operating subsidiaries of national banks are authorized to the state bank under state law. Finally, banks which are subsidiaries of bank holding companies must consider potential conflicts with the Federal Reserve Board, which maintains that it has jurisdiction over the activities of bank subsidiaries. Although the Second Circuit Court of Appeals has rejected this position in a case involving a subsidiary of an insured state-chartered bank, the Federal Reserve Board's Regulation Y continues to exempt from its approval requirements, in the case of state banks, only securities of wholly-owned subsidiaries which are engaged only in activities in which the parent bank may engage at the same location as permitted to the parent bank and, in the case of national banks, only securities of the kinds and amounts eligible for investment by national banks under the National Bank Act.

C. Assessments and Fees
Another factor in evaluating a conversion to a national bank is assessments. Each national bank is required to pay to the OCC a semi-annual assessment fee, due by January 31 and July 31 of each year, for the six month period beginning 30 days before each payment date. The amount of the semi-annual assessment paid by each national bank is computed pursuant to a notice which is published by the OCC no later than the first business day in December of each year and sets forth the fees to be charged by the OCC during the upcoming year. OCC Bulletin No. 95-66 sets forth the 1996 fee structure for national banks. These fees may be illustrated by an institution which is assumed to have $300 million of total assets for this purpose. Such an institution's semi-annual assessment in 1996 would amount to $38,290 ($29,606 plus $8,684 (.000086843 x $100 million)), or $76,580 on an annual basis.

The OCC semi-annual assessment fee for 1996 has been reduced for all national banks by 3% and the OCC has waived any inflationary adjustment to the schedule for 1996. The OCC semi-annual assessment fee for 1995 similarly was reduced for all national banks by 6% and the OCC also waived any inflationary adjustment to the schedule for 1995.

The assessments of the Maine Bureau of Banking generally are less than those of the OCC. Pursuant to Regulation No. 31, the annual assessment rate is $.07 for each $1,000 of an institution's total average assets. Assuming an institution had $300 million of total average assets for this purpose, its semi-annual assessment would amount to $10,500, or $21,000 on an annual basis, which is significantly less than the comparable assessment of the OCC.

The fees for various applications required by Title 9-B, as set forth in Bulletin No. 9 of the Superintendent, also generally are less than the fees of the OCC for comparable applications.

D. Expense Associated with Conversion
Of course there are various expenses involved in converting to a national bank. These include the filing fee which must accompany an application for conversion to the OCC, which currently amounts to $5,100 for conversions involving standard filings and $3,100 for conversions involving streamlined filings. An additional fee is assessed if an OCC pre-conversion field investigation is required, which will not be the case for an eligible depository institution. In addition to application related fees, there are the obvious costs associated with a change in a converting bank's name, which must include the word "national" under OCC regulations. These include changes to signage, letterhead and the like.

E. Market Comparisons and Perceptions
There are also certain intangible considerations involved in connection with a conversion to a national bank. One example in this regard is that in converting to a national bank an institution will be placed in a different peer group for purposes of the evaluation of its performance. For many state banks, particularly savings banks, and state savings and loan associations, this will mean comparison with a peer group with a stronger financial performance than the peer group with which the institution was compared prior to the conversion.

A related aspect to this factor for thrift institutions which have publicly-traded stocks is whether the market price of their stocks after conversion will move up to more closely be aligned with the price to book and price to earnings multiples of the banking industry, which generally are higher than those of the thrift industry. One would like to think that the market looks at an institution's fundamentals and asset composition in determining an appropriate trading level for the institution's securities, although clearly this is not always the case.

F. Potential Legislative Changes
Finally, an institution evaluating its charter must consider legislative developments in regard to charter options which may occur at the federal level in the near future. The recently enacted Deposit Insurance Funds Act of 1996 requires the Secretary of the Treasury to submit a report to the Congress by March 31, 1997 on the issues surrounding the development of a common charter for all insured depository institutions and the abolition of separate and distinct charters for banks and savings associations. The Act further requires that the BIF and the SAIF be merged on January 1, 1999, provided that no insured depository institution remains a federal or state savings association at that time.

There are a number of arguments for and against a unified charter. The major argument for a unified charter is that there is no longer a need for a thrift industry due to structural changes in housing finance, and that elimination of the current federal two-charter system would "level the playing field" between thrifts and banks. The other position is that there is no need for charter unification, but easier entry and exit between banks and thrifts. Advocates of this position believe that this approach similarly will "level the playing field" and allow the market to decide of its own accord whether the thrift industry is viable and should survive.

Charter unification requires that a number of issues be addressed at both the depository institution and holding company levels. At the depository institution level the disparity between commercial banks' and savings associations' lending authority, subsidiary activities and interstate branching authority must be addressed, and at the holding company level distinctions between savings and loan holding companies and bank holding companies would have to be eliminated, which is perhaps one of the most significant impediments to the creation of a unified charter. Another major consideration which would have to be considered in this regard is the status of state-chartered savings associations, which cannot exist under current legislation if the BIF and SAIF are to be merged on January 1, 1999 as scheduled. It is extremely unlikely that federal legislation will eliminate state-chartered thrifts because prohibiting the states from issuing a specific type of limited charter - whether savings banks, savings and loan associations, trust companies, cooperative banks or industrial banks - would be a significant blow to the dual banking system. Short of mandating the elimination of the state thrift charter, however, state-chartered savings associations could be subjected to the requirements of Section 24 of the Federal Deposit Insurance Act, which would limit their investments in equity securities and as principal activities to those which are permissible for a national bank, except as otherwise permitted by the FDIC, which would further limit the attractiveness of this form of charter. Indeed, a practical effect of eliminating the federal thrift charter may well be this result as a state savings association's ability to invest in equity securities and engage in as principal activities already is limited by the authorities of those of a federal savings association, which likely would be replaced by those of a national bank if the federal thrift charter is eliminated.

Another issue at the federal and state level is the mutual charter. Although much less significant than in recent years as a result of conversion activity, as of June 30, 1996 there still were 943 federal and state mutual thrift institutions, which held a total of 17% of total thrift assets ($179 billion out of a total of $1.023 trillion).

Although it is impossible to tell what might happen in the charter area, Jerry Hawke, Undersecretary of the U.S. Treasury, has publicly stated several times that the administration has a strong desire to combine the national bank and federal thrift charters and merge the OTS into the OCC, but in a way which would preserve the authorities of both charters and their holding companies - "a best of both worlds approach." He also has emphasized that the administration has no desire to eliminate mutual financial institutions and mutual holding companies and that it would propose to retain the mutual option for national banks and their holding companies in the event that the federal thrift charter is eliminated. Finally, it appears that the administration will be in favor of institutions conducting expanded financial activities through appropriately insulated subsidiaries and/or affiliates of banking organizations.

In addition to charter and related holding company issues, it is likely that the U.S. Congress will consider in 1997 legislation which attempts to modernize in some form our current banking system. The OCC revisions to Part 5 have provided some impetus in this regard, as some in the U.S. Congress, including the Chairmen of the House and Senate Banking Committees, view the OCC's actions as usurping the responsibility of the U.S. Congress for determining whether and to what extent the U.S. banking system should be modernized. Other congressional concerns regarding Part 5 relate to whether banking-related activities are more appropriately conducted through non-subsidiary affiliates of banks than through subsidiaries. Finally, certain of the special interest groups which have for so long sought banking reform - such as the securities, insurance and mutual fund industries -may be less opposed than in the past because of a desire to get something in return for national banks entrance into the insurance area and possible further expansion of their activities in the securities and other areas as a result of the revisions to Part 5 of the OCC's regulations.

As a result of these developments there is a strong likelihood that major banking legislation will be introduced in both houses of Congress in the first half of 1997. Due to the magnitude and complexity of the issues which will be involved, however, it is anything but clear whether the momentum for change in the market place will overcome protectionist forces and inertia in the U.S. Congress, which has shown an ability to address banking reform in recent years only on a limited basis and in the context of broad and systematic failure in the banking and thrift industries.