Washington -- Nothing motivates like fear and desperation. Thus, after years of hemming and hawing, Congress seems ready to change the face of banking in this country, overhauling laws that have governed financial services for more than a half-century.
"We're scared," said Sen. Jake Garn of Utah, the top-ranking Republican on the Senate Banking Committee. "We know that business as usual is no answer."
Confronted by severe strains on the fund that insures bank deposits -- it could be insolvent by year's end -- lawmakers have reason enough to move quickly when they return in September from a five-week recess.
But the battered condition of many commercial banks, starved for capital and reeling from loan losses, has alerted lawmakers to new problem: Encroaching competition from securities firms and insurance companies for such lucrative services as loans and credit cards. Banks have been unable to fight back, thwarted from diversifying into selling stock or insurance by a Depression-era law.
Meanwhile, profits have slid. Banks' return on assets has fallen from 84 cents on the dollar in 1970 to 50 cents on the dollar in 1990, the American Bankers Association says.
Many lawmakers believe banks will go the way of savings and loans -- and that taxpayers will have to pay for another massive bailout -- unless they can halt a half-decade slide that has triggered hundreds of bank failures.
So, last month, banking committees in the Senate and House responded to the Bush administration's call and endorsed sweeping reform packages.
Proposed legislation would open the door to affiliations between banks and securities firms. To bolster the strength of existing banks, both bills would permit interstate banking, allowing banks to buy or open branches in any state. The House bill would go even further, allowing commercial companies, such as Sears or General Motors, to own banks -- yet another tactic to enhance the banks' ability to attract capital.
Those proposals have triggered bitter denunciations. Critics fear banks will be tempted to speculate with federally insured deposits -- a move that could trigger a debacle dwarfing the S&L crisis. They also worry that widespread interstate banking, designed to help banks lower costs and boost profits, will allow financial conglomerates to siphon credit from one region to another, intensifying gyrations in local economies.
"This bill is the seeds of our destruction," said Sen. Paul S. Sarbanes, D-Md., after he voted against the Senate committee's package. "It is an assault on safety and soundness . . . that will come back to haunt us in the years ahead."
Mr. Sarbanes and his allies promise to put up a fight when the bill comes to the Senate floor next month.
A similar struggle is likely in the House, where proposed legislation must first clear the House Energy and Commerce Committee and its powerful chairman, Representative John D. Dingell, D-Mich., a brazen skeptic about many proposed reforms.
Mr. Dingell and other critics are concerned about proposals permitting industrial concerns to own banks through diversified holding corporations. They worry about the national security implications of a law allowing foreigners -- the Soviets, the Japanese -- to own U.S. banks.
Beyond that, however, their greatest fears come from distant memories of a national nightmare: the Great Depression.
Bank abuses of the 1920s are usually listed as a prime reason for the nation's most severe economic collapse. Those abuses inspired laws that separated banking and commerce, established federal insurance on bank deposits and created a system of small banks to guard against the concentration of economic power.
Today, Mr. Dingell speaks of the "hideous abuses" that occurred in the '20s, when banking and securities were intermingled.
Mr. Dingell's father "lost every penny in a bank that folded," the the congressman recalled, evoking memories of his grandfather's eviction from his farm.
But history teaches other lessons as well. Scholars note that the commercial banks maintaining securities affiliates were not among those that actually failed.
Furthermore, some economists contend that the depression was triggered, not by bank abuses, but by the tight-money policies of the Federal Reserve. The banks, they said, simply were a convenient target for populist fury.
When considering the banks' plight, some banking industry leaders reflect on the decline of the once-mighty railroads. That was triggered, they say, by federal regulations that prevented railroads from diversifying into newer forms of transportation.
"It's an accurate analogy," said Mark Burneko of the American Bankers Association. "We're locked in a regulatory environment that is not allowing banks to adapt to consumer demands and the changing marketplace."
At first glance, traditional banks seem to be surrendering in much the fashion of the old railroads.