Save banks with a new bank law
The recent successful battle to shore up New York's financially troubled Greenwich Savings Bank - the nation's seventh largest savings bank, which is now being merged with another financial institution - underscores the importance of crucial bank dereg-ulation legislation now before Congress. Despite significant differences between the Senate and House measures, it is vital that lawmakers act on a banking reform package as expeditiously as possible.Skip to next paragraph
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The currently much-publicized financial difficulties of the 500 or so mutual savings banks are, of course, only the tip of the iceberg of problems in the banking world. Many savings and loan institutions are also in trouble. The difficulty is that banks are finding themselves trapped in a classic ''cost-price squeeze,'' saddled with long-term low-interest earning loans, yet having to pay out interest on deposits at high rates.
For that reason, there is much to be said for the thrift aid measure recently passed by the House. The bill, which shot through that chamber by a huge majority, would allow commercial banks to absorb thrift institutions in emergency situations. But before the commercial bank could take over a thrift institution (a mutual savings bank or an S&L) the Federal Savings and Loan Insurance Corporation would first have to attempt a merger by a healthy S&L in the same state or, that not being possible, by an S&L in another state. If that fails, the federal agency could cross both state - and industry - lines to allow a commercial bank to effect the merger.
Congress, and that mainly means the Senate, should adopt the basic thrust of the House measure as soon as possible. In a sense, the measure represents a ''camel's nose'' approach, since many bankers have long hankered after full-scale interstate banking. This measure will go far in that direction. Still , the bill represents a responsible compromise that seeks to protect the differentiation between commercial banks and thrifts. The bill also recognizes that it is better in the long run to allow some breaking down of tidy industry lines, if such a breaching is necessary to save an imperiled financial institution.
Unfortunately, quick action on a banking bill is complicated by the fact that the Senate is committed to consideration of a broader deregulation measure. The Senate (Garn) bill has much to recommend it, including provisions that would alter the Glass-Steagall Act of 1933 and allow commercial banks to underwrite municipal revenue bonds. The Senate legislation also has some more controversial sections that could spell delay of a reform package. They would allow banks to boost the amount of money they can lend to a customer, strike down state interest rate ceilings on commercial loans, and allow banks to offer money market funds.
The important point is that Congress must not let itself become immobilized on clearing a measure this year that at the very least meets the most pressing need. That would seem to be the intent of the House measure, allowing some interstate and cross-industry mergers where appropriate.