So Much for Banking Overhaul

November 04, 1991

Overhaul of the U.S. banking system, one of the high hopes at the convening of the 102nd Congress, is likely to unravel in the House today after having provided employment for hordes of lobbyists but little else. This is one defeat with a thousand fathers: huge divisions in the banking industry itself, competing claims from the insurance and securities industries, after-shock from the savings and loan collapse, fond memories of New Deal reforms, committee rivalry within the Congress, bewilderment and timidity from many legislators.

What may be extracted from the wreckage is a needed $70 billion replenishment of the Federal Deposit Insurance Fund although, even there, seasoned bank-bashers on Capitol Hill sniff a bailout reminiscent of the S&L raid on the taxpayers.

President Bush's plans to let big banks go into other fields of business so they can compete worldwide with Japan's behemoths was so thoroughly shredded in a deal between the chairmen of the House banking and commerce committees that the administration wound up trying to defeat the legislation on the floor. Remaining to be seen is what, if anything, emerges from the Senate and from a subsequent House-Senate conference committee.

Any understanding of this imbroglio has to start with the banking industry itself. With Mr. Bush's backing, the big New York banks were at the forefront of the effort to allow banks to move more deeply into insurance and securities brokering, this despite the fact that they have had trouble enough running their own enterprises. Regional banks were more interested in administration-backed provisions to permit them to open or take over branches across state lines. Small banks despised both approaches, fearing being swallowed up.

So with the banking industry itself one loud cacophony, the powerful insurance and securities lobbies moved in to reverse the administration's thrust and fashion a House bill making it more, not less, difficult for banks to get into other lines of work. Nor was there much enthusiasm for a dubious Treasury proposal that would permit big industrial companies to buy failing banks.

In the end, as we forecast last June 15, Congress will have to bolster the FDIC and possibly -- less possibly than we thought then -- provide some openings on interstate banking. Nothing more. Which may be less of a tragedy than the squeals of the interest groups suggest. Under the present system, with its merger mania, there seems little to prevent big from getting bigger and biggest -- if that is what the White House wants. Consolidation is the word, and it's moving fast to diminish the number of banks in this country.

Perhaps the dithering on Capitol Hill proves the old adage that sometimes the best legislation is no legislation -- or, at least, very little legislation.

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