Banking Reforms Narrowed

June 15, 1991

The worse the banking crisis becomes, the less it seems we can expect in the way of comprehensive reform of the industry. As the year began, President Bush put high hopes on the most sweeping overhaul of the U.S. financial system since the New Deal. Now he may have to settle for a replenishment of the Federal Deposit Insurance Corporation's fast-dwindling funds and, if things fall his way, for a green light to permit banks to open branches across state lines.

Last month, the administration was ecstatic when a House Banking subcommittee approved other key elements of its huge reform package, especially provisions that would permit almost any kind of corporation to buy banks that, in turn, would be permitted to underwrite securities and insurance. But administration happiness was short-lived. Reality intruded in the formidable personages of chairmen Henry B. Gonzalez, D-Texas, of the House Banking Committee and John D. Dingell, D-Mich., of the House Commerce Committee.

This week, despite a session at the White House with the president and his aides, these powerful Democrats let it be known that they have their own, quite separate, agendas. Mr. Gonzalez is deeply troubled by the operations of the FDIC and its Bank Insurance Fund and wants tighter, consolidated regulation of all financial institutions to be built into any replenishment plan. Mr. Dingell, who scuttled bank reform in 1988, insists his committee has jurisdiction over banking's entry into insurance and securities, a prospect he deplores.

Paradoxically, what gives Reps. Gonzalez and Dingell their leverage is the growing urgency to beef up FDIC funds, mainly by increased levies on member banks. This week the General Accounting Office, a watchdog agency of the Congress, warned that the Bank Insurance Fund may be exhausted in six months and hinted that a taxpayer-bailout along the lines of the S&L model may in time be required. The total size of commercial banks with troubled loans has increased to $419 billion, from $399.7 billion three months ago. Administration officials say congressional action must come before the next fiscal year begins Oct. 1. Given the magnitude of the banking problem, they may be glad to settle for narrowly focused legislation even though this dooms wider reform to indefinite delay.

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