NR 97-45
May 15, 1997

         OCC Study Finds No Safety Net Subsidy for Banks

A research paper by OCC economist Gary Whalen concludes that most
banks face regulatory costs that outweigh any benefit from the
deposit insurance safety net and only a small minority of banks
receive a net benefit, which is minimal at best.  The paper also
finds no evidence that banks tend to organize their activities in
a bank rather than a bank holding company, as would be expected
if banks gained a significant advantage from the safety net.

"This paper suggests that banks gain no competitive edge in the
marketplace from the safety net," said Comptroller of the
Currency Eugene Ludwig.  "Nor does the alleged safety net subsidy
give an advantage to conducting activities in a bank rather than
a bank holding company," he said.

Whalen's research found that when benefits from the federal
safety net are calculated against bank regulatory costs for the
50 largest banking companies, the median net value from the
safety net is a negative 7.3 basis points.  A negative net value
applies to 68 percent of these banks.  Moreover, this measure is
based on a conservative estimate of regulatory costs of 3 percent
of bank noninterest expenses.  

The study also found that empirical evidence related to bank
organizational behavior refutes the existence of any significant
advantage from the deposit insurance safety net.  If a meaningful
advantage existed, banks would likely choose to conduct
activities in the bank rather than the bank holding company
affiliate.  For example, mortgage companies would be expected in
banks or their subsidiaries, rather than bank holding company
affiliates.  However, the study found that in the top 20 banks,
no such pattern existed.

Six of the banks conducted mortgage banking activities in a bank
holding company affiliate, nine banks conducted the activity in
the bank or a bank subsidiary, and five performed the activity in
a combination of the bank and the bank holding company.
The study examined debt issuance as well and found that debt is
issued by both banks and their parent holding companies.  If
there were a meaningful safety net subsidy, banks would be
expected to issue debt exclusively.

A copy of The Competitive Implications of Safety Net-Related
Subsidies may be obtained by writing to Comptroller of the
Currency, Public Information Room (Mail Stop 1-5), Washington,
D.C. 20219; faxing a request to (202) 874-4448; ordering by phone
(202) 874-5043; or visiting the OCC's Public Information Room at
250 E Street, S.W. in Washington, D.C. (9 a.m.-noon and 1-3 p.m.,
Monday-Friday).  The document is available on the OCC's web page
at http://www.occ.treas.gov.

                              # # #

The OCC charters, regulates and supervises approximately 2,800 national banks
and 66 federal branches and agencies of foreign banks in the U.S., accounting
for more than half the nation's banking assets.  Its mission is to ensure a
safe, sound and competitive national banking system that supports the
citizens, communities and economy of the United States.