Newspaper article The Christian Science Monitor

New Banking Legislation Follows National Upturn for Industry

Newspaper article The Christian Science Monitor

New Banking Legislation Follows National Upturn for Industry

Article excerpt

WHEN President-elect Clinton takes office in January, he is expected to face one fewer major economic challenge: The United States banking system, which only a year ago looked as if it were about to slip into the type of financial disaster that characterized the savings-and-loan industry, is turning in its best earnings ever.

Moreover, tough new rules, effective the week of Dec. 21, are expected to enable regulators to move more quickly to prevent bank crashes - and the ensuing erosion of public confidence. The new law requires, among other steps, that banks set aside two cents of every dollar in deposits as a cushion against losses.

The increasingly upbeat assessment of the banking industry can only come as welcome news to the Clinton economic team; escalating costs associated with the cleanup of the thrift industry - running into the hundreds of billions of dollars - has been a recurrent nightmare for the Bush administration.

The relatively rosy banking scenario contrasts sharply with the political drama faced by another newly elected Democratic administration when it took office 60 years ago next year: In 1933 the incoming Roosevelt administration had to first shore up the troubled banking system before it could enact legislation to rejuvenate the economy.

"We're definitely seeing a national upturn for the banking industry," says Robert Foley, an analyst with Veribanc Inc., a bank rating and research firm in Wakefield, Mass. "Despite some regions with special problems for banks, such as California, where the economy is in trouble, the credit problems linked to banks have definitely declined."

Wall Street investors, meantime, continue to favor selected bank stocks.

Through the first nine months of 1992, the US banking industry racked up a record $24.1 billion in profits. And 1993 is shaping up as also good, experts say. The industry's previous best year was 1988, when US banks earned $24.9 billion.

Not all industry experts are euphoric about the well-being of the nation's 11,600 commercial banks.

Even generally upbeat analysts, such as Prof. Paul Nadler, of Rutgers University, in Newark, N.J., argue that the industry must modernize to remain competitive with well-financed and aggressive new nonbank "banks," ranging from consumer companies like Sears, Roebuck & Co. …

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