They Just Don’t Get It : Washington wimps out on serious banking reform

Congress just didn’t get it--the need for major bank reform. So legislators have shamefully left the industry to limp along into the New Year under old Depression-era rules. But then how would the House understand real-world banking when it had until recently its very own bank, where some members wantonly bounced checks? The Senate fared a little better in tackling the complicated issue but blew it by tacking on an amendment to cap credit card interest rates.

The result: House and Senate passed a compromise bank bill devoid of any element of the reforms advocated by the Bush Administration. Congress roundly defeated the President’s attempt to give banks new powers to enter new businesses or branch across state lines to raise new capital. The narrow bill instead provides for $70 billion for the almost broke bank insurance fund, which guarantees deposits of up to $100,000. The money is supposed to be repaid by banks within 15 years. The bill also provides for early federal intervention at troubled banks.

The outcome reflects the failure of Congress to do its homework and distinguish between the problems of the banking industry and those of the savings and loans. Fearful that banks, besieged with troubled loans, might be hit by an S&L-style; debacle, Washington once again shunned bank reform.

Legislators ignored the facts and the need. Just last week, Veribanc Inc., a bank research firm, said that a sample of third-quarter bank profits showed that the industry as a whole was solvent, compared to S&Ls;, many of which were insolvent at a similar time of loan problems in 1986. Freeing banks from Depression-era rules would have helped to make them more competitive domestically and internationally.

Congress withdrew when it should have deposited its political capital into serious reform of our banks.