This presumably applies to foreign governments as well as private investors. Governments will eventually see that returns from encouraging domestic investment will outstrip those expected on their growing holdings of dollar reserves, or that more-flexible exchange rates are required to exercise a stabilizing monetary policy.
I believe that there are two separable arguments. I would prefer the holding company -- for reasons I have discussed -- even if the Fed were not the umbrella supervisor. But I also think that we have to be involved in bank supervision -again for the reasons I have discussed.