Unchain The Banks, And Save Taxpayers Money

Some legislation should never see the light of day. The best recent example: The bank "reform" presented to the House by Representatives John D. Dingell (D-Mich.) and Henry B. Gonzalez (D-Tex.). Under the guise of expanding banks' ability to offer financial services, the Dingell-Gonzalez bill twisted the Administration's generally well-conceived bank reform into a protective shield for the securities and insurance industries. The bill actually curtailed such low-risk, long-standing bank activities as underwriting municipal bonds, offering discount brokerage, and selling insurance where allowed by state laws. This bill deserved the 324-89 stomping it received from the House.

Unfortunately, the play-acting has all but doomed the chances for real reform in banking. With the Federal Deposit Insurance Corp. teetering on the edge of insolvency, Congress must approve a $30 billion loan for the Bank Insurance Fund before members go home for Thanksgiving. Banks will then face the worst of both worlds: They will pay higher premiums and suffer stricter regulation as the terms for the Treasury Dept.'s loan, but they'll be barred from the new territories and services they need to boost their profitability.

The profits of healthy banks are all that stand between today's troubled banks and taxpayer's pockets. business week has long argued that if closely supervised, banks should be free to compete in a vast marketplace of financial services. Today, that's more than a sound principle; it's an economic necessity. President Bush should bring his bank-reform plan back next year. Thorough reform is the only way to avoid an s&l-style taxpayer bailout of the banks.

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