Bank’s Inroad Into Securities Sales Is Upheld : Banking: The Supreme Court refused to stop Security Pacific from packaging its mortgages for sale to investors.

The U.S. Supreme Court on Tuesday refused to bar Security Pacific National Bank from pooling its mortgages and selling them as securities to investors, a move that further chips away at the nation’s 57-year-old law separating banks from the securities business.

As expected, however, securities industry representatives and bankers disagreed sharply over how much the court’s action erodes the Depression-era Glass-Steagall Act separating the businesses.

Securities industry officials called the Supreme Court move a major blow to the act, and some other observers predicted that it will provide bankers further inroads into the securities business. But banking executives said such assessments exaggerate the effect and that the court simply upheld the right of banks to sell loans as they choose.

“It is a step in the right direction, but by no means did the wall tumble,” said Richard M. Gerwitz, a managing director of Security Pacific ‘s merchant banking unit.

The case stemmed from Security Pacific’s move in 1987 to bundle home loans and sell them to investors as “pass-through certificates.” Investors who buy certificates, also called mortgage-backed securities, receive a stake in the bank’s pool of mortgages. Principal and interest payments made by homeowners are then “passed through” to investors who own the certificates.

U.S. Comptroller of the Currency Robert L. Clarke, who regulates national banks such as Security Pacific, gave the bank his blessing, saying laws do not restrict the way banks can sell their mortgages. Security Pacific National Bank is the main unit of Security Pacific Corp. in Los Angeles.

Clarke’s opinion sparked a lawsuit filed against him by the Securities Industry Assn., the main trade group for brokerages. The suit maintains that Security Pacific’s activities amounted to the underwriting of securities, which is forbidden by the 1933 Glass-Steagall Act. In one court paper, the association went so far as to say that allowing Security Pacific to continue its program would be to “write Glass-Steagall right out of the statute books.”

Enacted during the Great Depression amid fears that securities ventures would cause bank failures, Glass-Steagall is a legal barrier preventing banks from entering such investment-banking activities as underwriting stocks. Bankers have long criticized the law as outdated and have chipped away at the barrier the past two years as regulators have allowed such expanded powers as underwriting corporate debt .

A federal appeals court last September said Security Pacific could package its own loans and underwrite them as securities, calling it “the business of banking.” That decision reversed a 1988 ruling by a federal judge. The Supreme Court, without comment, let stand the appeals court ruling.

Reacting to the Supreme Court action, the securities association warned that one result could be an increase in risks for banks and taxpayers, who insure deposits up to $100,000. It urged Congress to take up the Glass-Steagall controversy to “prevent the random chipping away by federal banking agencies of the safety barriers between the two industries.”