Bank reform

February 07, 1991

The Treasury Department's proposals for restructuring the nation's banking system are as thick as the telephone book, so it will be a long time before Congress works its way through this legislation. That's just as well, since the task of reforming the nation's banking system is not one that should be undertaken lightly. After all, the basis for the present system, now frayed and tattered, was the rash of bank failures during the Great Depression that brought financial devastation to millions of American families.

In the modern economy, banks are operating at an increasing disadvantage as they compete with businesses not hampered by the rules necessary for institutions that offer a guarantee to depositors. With a rising number of bank failures and the accompanying strain on the federal deposit insurance fund, the need for some changes is no longer debatable. But there is plenty of room for debate on just what those changes should be. We see the administration's proposals as a good basis for discussion, but not a final vision of a reformed banking system. The proposals skip a lot of important territory -- they lack, for instance, any plan for shoring up the beleaguered deposit insurance fund -- but they do tackle most of the major issues.

The proposals include a plan to erase barriers to interstate banking, thus allowing banks the same opportunities to expand in this country that they now have to open branches abroad. Other proposals, such as allowing industrial companies to own banks, present more worrisome problems. A plan to limit deposit insurance to $200,000 for each depositor in any one bank does not go far enough in limiting taxpayers' potential liability.

The Treasury plan has started the discussion. Now it's up to Congress -- and its constituents -- to turn those proposals into a sound banking system.

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