Congress to Debate Bank Reform but Need to Replenish Bank Insurance Fund Could Hamper Plans for Broader Reform. 'TIME TO ACT'

By Linda Feldmann, writer of The Christian Science Monitor | The Christian Science Monitor, August 19, 1991 | Go to article overview

Congress to Debate Bank Reform but Need to Replenish Bank Insurance Fund Could Hamper Plans for Broader Reform. 'TIME TO ACT'


Linda Feldmann, writer of The Christian Science Monitor, The Christian Science Monitor


WHEN Congress returns from its summer recess next month, overhauling the nation's banking system will be a top item on the agenda.

But a danger lurks that the urgency of the most agreed-upon aspect of the legislation - a replenishment of the nearly insolvent fund that insures commercial bank deposits - could derail plans for a broader reform of depression-era laws, say congressional and independent banking analysts.

The question is how urgently the Bank Insurance Fund (BIF) needs to be replenished.

The answer may come Tuesday, when the General Accounting Office and the Congressional Budget Office deliver prognoses on the funding level of the BIF. If the offices project the BIF will become insolvent by the end of September, Congress will have to act immediately to keep it funded - and may lose its momentum for more comprehensive reform.

But if the two offices say the BIF will be out of money by the end of the year, that allows some breathing space to iron out more contentious issues in the reform, such as whether to allow commercial/industrial companies to buy banks and how far to allow banks into the securities business.

In the event Congress needs to act quickly, the House Banking Committee has written a smaller, separate bill that deals chiefly with BIF refunding and reform of the deposit insurance system.

The Senate Banking Committee has not prepared such a contingency plan; an aide to the committee insists the full Senate is capable of completing legislation for a comprehensive reform, including BIF refunding, by the end of September. The aide cites past years as a precedent, when efforts at banking reform have cleared the Senate only to run aground in the House, whose committee structure requires the proposed banking reforms to go through four committees.

In congressional testimony July 31, Treasury Secretary Nicholas Brady warned against instituting reform bit by bit.

"A thin, piecemeal approach is likely to push our most pressing problems into the future and could well defeat the very purpose of the legislation, which is to strengthen the banking and financial system and better serve consumers," he said.

"Congress doesn't need more time to think about this," says Cynthia Glassman, director of research at the financial consulting firm Furash & Co. "They've had years of studies and hearings, and now it's time to act."

Despite the hurdles ahead, the Bush administration and Congress's Democratic leaders say they are keen to finish banking reform this year. …

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