When a presidential candidate ahead in the polls volunteers that he intends to create a "different sort of banking system" and that "a certain percentage of the bank assets of this country have to be devoted to community banking," it's time to sit up and take notice.

That is exactly what Gov. Bill Clinton recently told a group of reporters in Little Rock, Ark.

"What I propose," he said, "is to create one of those [community development] banks in every urban area of any size and every poor rural area."

Model Program in Chicago

Gov. Clinton said he had in mind as a model South Shore Bank in Chicago and its Good Faith Fund, which he said was patterned after a loan program by a bank in Bangladesh for low-income people.

The implications of Gov. Clinton's comments are sobering.

Without so much as a nod toward the need for regulatory relief or for a more efficient banking structure as part of a modern, integrated financial services system (the model of all industrialized nations except the United States), the Democratic candidate made clear that his preference instead is to rely on greatly expanded credit allocation through a nationwide system of federally mandated lending - in other words, the model of a developing country.

System Invites Abuse

How these facilities would be staffed and supervised to avoid a national lending scandal that could dwarf the S&L debacle is a subject the governor did not address.

While it is true that what is said by a presidential aspirant during a campaign is often revised after the election, Gov. Clinton's remarks nevertheless reflect a disturbing mind-set with respect to banking.

Reliance on federal bureaucracies to fund New Deal-type reforms in the 1990s would simply compound the problems generated by the spate of new regulations aimed at eliminating the risk inherent in banking.

Absent from Gov. Clinton's thinking is any hint that the private sector has anything to do with economic recovery.

Competition Stifled

Absent, too, is any recognition that the cumulative drag of bank regulation, together with an archaic legal structure, is making it impossible for U.S. banks to compete against nonbank and foreign competitors.

The result is that market share continues to be lost as inflation-adjusted assets of banks and thrifts continue to drop - 15% over the past three years - and the ratio of deposits to gross domestic product has hit a new low of 52%.

If the business of commercial banking continues to be driven by market forces - and by more government intervention - toward more efficient financial service providers, Gov. Clinton may well see the realization of his dream of a "different sort of banking system."

However, that system will be one that is not what he talked about in Little Rock. It is a system that will find it ever more difficult to finance the loans to small business and industry that are needed for economic recovery.

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