Summary: GAO discussed the Federal Reserve System's authorization of 21 bank holding companies and 5 foreign banks to expand their securities activities by establishing non-bank subsidiaries. GAO noted that the Federal Reserve needed to consider: (1) a controlled, phased approach to expanding securities activities to ensure sufficient regulation and oversight; (2) whether transferring securities activities from banks to securities companies will reduce the banks' profitability, size, and diversity; (3) whether an alternative approach, using security companies as direct bank subsidiaries, would negatively affect the banks or competitively limit non-participating securities companies; (4) a cautious approach to relaxing regulatory firewalls designed to protect banks from financially risky transactions and conflicts of interest; and (5) the role of Federal Reserve firewalls in limiting U.S. banks' competitiveness in foreign markets and the relative flexibility that foreign banks have in coordinating banking activities.