The banking bill delivered by Congress on the eve of Thanksgiving, it is almost too obvious to say, was a turkey. It proved once again that Congress can make any bad economic situation worse.

If we're not careful, it will turn recession into the other thing.

The probable effect of the turkey bill will be to cause the U.S. economy to implode in much the same way that a contracting money supply had that effect in the early 1930s.

As Sanctified as Motherhood?

That's quite a charge, you may say.

The bill was just motherhood and apple pie. No taxpayer bailout. An end to too-big-to-fail. Risk-based insurance premiums. Higher insurance premiums. Early intervention to save money on liquidations. No insurance for foreign deposits on which banks pay no premiums. It's all designed simply to make the banking system safer.

It also is designed to make the banking system smaller, more risk-averse, less responsive to the borrowing needs of businesses, and of less use to consumers. Here are a few specific effects:

* Banks will take less credit risk than they were taking even in this "credit crunch" year of 1991. This is because low capital (which can result from loan losses) (1) means you are dead and (2) means you have to pay higher insurance premiums, thereby, insuring that you will be dead if you weren't already.

In addition, credit risks that the Federal Deposit Insurance Corp. perceives also will result in higher deposit insurance premiums under the new risk-based premiums rule.

* Large troubled banks will fail because of liquidity problems long before they approach insolvency because (1) they will experience runs when they fail to meet a capital requirement, (2) they will be able to go to the Fed for only 60 days, (3) they won't be able to raise capital because the system is so draconian, and (4), therefore, either the secretary of the treasury must declare the bank a regional disaster, worsening the runs, or the bank must be placed in receivership.

Not all such banks have to fail, but under the turkey bill, they will.

* Only a few American banks will be able to maintain offices abroad. This is because we explicitly discriminate against foreign deposits and provide a system in which the first to run get paid while everyone else stands in line waiting for the FDIC to liquidate.

A few American banks are strong enough to buck this trend, but not many. So in international banking, where we have been losing market share for years, we will be dealt another blow.

Obviously, this is great for U.S. business internationally, great for our balance of payments, and great for the position of the dollar in world trade. The Germans wouldn't do this to their last ecu.

* Bank capital will get more expensive still and will be available only to the strongest banks. The penalties for weakness are too draconian to attract investment in less than the best.

And most U.S. banks must pay more than their foreign competitors for longer-term funds because the Anerican system is the only one in which a large bank can fail.

The Bank Bill's Genius

Our money market funds, which already place a large part of their funds with foreign banks, will look like Japanese and European investment societies because so few American names will look safe enough to put in portfolio with maturities of more than a few days.

The genius of this bill is that it came on the eve of a Thanksgiving when consumer confidence was at a historical low point, on the eve of a Christmas when even a retailer can't crack a smile, and at a point in our economic history when we have wrung an historic amount of debt out of the private system.

Our businesses need more capital if they are to get back on the path of growth - out of the trough of contraction and "restructuring." The turkey bill, instead, guarantees contraction of lending.

Yes, money-a-plenty will be available for investment-grade credits. And eventually, the system will adjust itself, but we all remember what Keynes said about the long run.

Inept Monetary Management

We used to be the only country on earth where noninvestment-grade companies could get credit, and that availability funded many homes and many growing businesses.

My degree in macroeconomics was earned over the dinner table with economists rather than in school, but as I understand it, you get out of recessions by enlarging the monetary base (and therefore investment0, and you get into depressions by shrinking it at the wrong time.

The Federal Reserve has done just about all it can to pump up the economy, and in the long term, that will be usefl. But lower interest rates won't pump money into the system if banks don't lend.

This analysis does not overlook the anecdotal and survey evidence that lending is down in part because business do not want to borrow.

Economic Effect Undeniable

That is an appropriate attitude for businesses that have been trying to reduce their debt loads and that don't have much faith in the strength of consumer demand.

But the weakening of loan demand does not contradict the fact that, from a macroeconomic point of view, credit availability is contracting.

Indeed, in real estate, the market has dired up completely, and the hundreds of billions of dollars of loans that come due in 1992 and 1993 can't be refinanced.

Regardless of what anyone thinks about the viability of those credits, the unavailability of funds constricts the economy.

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