No More Savings and Groans, Please : Keep Seidman, elevate commission’s horizons

Washington’s credibility was so savaged by the savings and loan crisis that it may be unable to lend a hand to the nation’s commercial banks. That, in turn, could leave America’s banks second-rate powers in the global economy.

But there are ways to recover. One is for Congress to modify its plan to create an independent study commission so that it would focus less on the history of the savings- industry debacle than on the more useful and pressing question of how to prevent a similar calamity for banks that compete globally.

At the same time President Bush should stop trying to get L. William Seidman to leave the Federal Deposit Insurance Corp. early and start trying to persuade him to stay on when his term ends. Washington needs the blunt integrity that comes through in Seidman.

The credibility problem started with regulatory reforms that Washington promoted for the savings industry, reforms that led to a frenzy of fraud that will cost American taxpayers hundreds of billions of dollars.

Ironically, the rate at which confidence in the thrifts and in government is vanishing in the wake of the scandal poses fewer problems for the thrifts, which may well be an endangered species anyway, than for U.S. banks that need regulatory reform of their own if they are to keep traveling in the same circles as the banks of Japan and Europe. But taxpayers will correctly insist on more than “trust us” from would-be bank reformers.

There is no shortage of ideas about how to change banking regulations and why they need changing.

The Treasury Department has a study under way, as do the Federal Reserve, dozens of academics and banking consultants and committees on Capitol Hill. Their proposals range from a virtual hands-off approach that would let banks get into insurance and securities as they see fit to making regulation even stricter.

The need for reform is not pure bank propaganda. Two decades ago, six of the top 20 banks in the world were American. Today, Citibank--the biggest in the nation--ranks 24th in the world. Much of the change has to do with a deliberately devalued American dollar, but there are structural problems as well that will tend to keep American banks far down on the world list unless there are changes in regulation.

European banks already have an edge in providing a wide range of financial services American banks cannot touch, and furnishing them at lower cost. Japan’s banks are changing to follow suit.

Washington needs to produce not only banking reforms but also assurances for taxpayers that they will not go sour the way the savings and loan reforms did. The fastest way to do that is with a bipartisan panel that taxpayers can trust to referee the debate over ideas for bank reform, much as presidential commissions of the 1980s did for Social Security reform and Central American policy.

Anything less will leave Washington with a collection of conflicting views, all fashioned pretty much out of the public eye and none more deserving of trust than any other.