MNC Financial Inc., the region's biggest bank company, yesterday asked the federal government for permission to merge its American Security Bank subsidiary into its Maryland National Bank subsidiary in an effort to cut costs and improve earnings.

The merger would further erode the power of American Security Bank chief executive Daniel J. Callahan, a dominant figure in Washington banking for more than 20 years. Callahan said that following the merger he will lose his position as head of District-based American Security, although he will retain authority over Maryland National Bank's corporate lending.

Callahan said he was not bothered by the loss of his title as chief executive of American Security because he "lost the meaningfulness" of his position in August, when MNC reorganized its lending operations.

American Security and Maryland National formed the MNC bank holding company in 1987, giving them common ownership. But they did not actually merge their operations and balance sheets "because we didn't want to lose the power of the American Security name," Callahan said.

Recent financial problems brought on by the downward spiral of the region's commercial real estate market prompted MNC to merge the banks to eliminate their duplicate managers, boards of directors and operations.

Outside of the management shuffle, the fallout from the merger should be minimal. While American Security will drop the "bank" out of its name, it will keep the trademark and become a division of Maryland National, the largest bank in that state.

MNC officials said they have not decided who will become officers of Maryland National Bank following the merger, although there has been no indication that Maryland National's president, William Daiger, will give up his title.

The American Security Bank board of directors, which includes 22 members of Washington's business elite, will be disbanded. It is unclear whether any of its members will be invited to join the boards of Maryland National or MNC.

American Security also will officially move its headquarters to Silver Spring, thereby circumventing federal banking regulations that prohibit the merger of national banks across state lines. Callahan said that under the proposal, American Security executives who work in the current headquarters -- which sits directly across from the Treasury Department and is depicted on the $10 bill -- will continue to do so.

No other changes are expected at American Security's 27 District offices, and Callahan said the number of employees serving customers will not be reduced.

The actual merger of the two banks follows an internal reorganization at MNC that began in August and already has eliminated more than a dozen senior executives and hundreds of employees throughout the bank company's many subsidiaries, including about 50 at American Security.

In that reorganization, the two banks merged all of their lending operations, and MNC gave Callahan responsibility for corporate customers and gave Daiger responsibility for the banks' retail customers.

MNC officials said the two men will continue to be responsible for those lending divisions and Daiger will continue as vice chairman of the holding company. Callahan will remain president of MNC Financial Inc.

After losing more than $240 million in the first nine months of the year, the two banks are short of capital, the cash and assets banks must have on hand to protect the federal deposit-insurance fund from losses.

By merging the two balance sheets, MNC will be able to strengthen its capital position, although it will still fall short of federal minimums. The merger also should save MNC money by making the company more efficient, Callahan said.

Federal banking regulators, who have criticized MNC's duplicate structure, according to sources, are expected to rule on the merger within 30 days. If it is approved, Callahan said all changes should be finalized by the end of the year.