Don’t Bank on Washington : Despite dire warnings, banking reform is not a done deal

Some people in Washington still have the idea that banking reform isn’t really necessary. Or that, if it must come, it need only be half-baked. Wrong. Just consider an authoritative new warning that the government’s bank insurance fund may run dry by year’s end. Yes, that quickly.

On Friday the respected General Accounting Office estimated the balance in the Federal Deposit Insurance Corp.’s fund at $4 billion. That means there’s only $4 billion to cover deposits in banks likely to fail in 1991. The FDIC, which insures deposits up to $100,000, had previously estimated the fund at a still low but far more comfortable sum--$8.4 billion.

The GAO report echoed previous warnings by FDIC Chairman L. William Seidman and others that the fund would be insolvent by the end of the year.

Even so, the temptation in Washington will be to address only the fund’s short-term, immediate need for infusion of cash. But that won’t address the long-term problems plaguing banks. The real answer lies in comprehensive bank reform.

Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking Committee, wants to quickly shore up the fund through a bill separate from a bank reform package. That sounds like a good idea, but it isn’t. That’s because Gonzalez’s approach would do little to relieve banks of the burdens that cause the drain on the Federal Deposit Insurance Corp.

Depression-era laws forbid banks to raise new capital by expanding into other businesses, such as selling insurance, or by branching across state lines. The omnibus bank reform bill would allow such expansions and provide up to $70 billion in new borrowing authority for the FDIC bank insurance fund. That would go a long way toward helping the banks, and depositors whose savings are protected by the FDIC.