It is bitterly disappointing.

It appears the time has come for the banking industry to pull the plug on its legislative efforts for 1995. The House has made it pretty clear it is not going to enact a bill the banking industry can or should accept.

The legislative package in the House has two principal components. One part reforms the Glass-Steagall Act, and the other provides some reduction in the regulatory burden imposed on banks.

The Glass-Steagall bill advancing in the House is seriously flawed. Bankers have been counting on remedying its deficiencies during the conference with the Senate.

The House leadership, however, has raised to an unacceptable level the ante for getting a bill through the House. The price for passage apparently will be a five-year moratorium on new insurance activities by national banks.

The decision by the leadership to pander to the insurance agent lobby is blatantly antibank and anticonsumer. It's contrary to everything Republicans believe about getting government off people's backs and allowing markets to operate freely.

The Glass-Steagall reform bill being readied for House floor action is so limited and contains so many burdensome requirements, even apart from the insurance moratorium, that most banks question its efficacy. Most notably, they worry that the bill will require that securities activities be placed in holding company subsidiaries rather than in banks or direct subsidiaries of banks.

The bank holding company device was conceived as a means to bypass government restrictions on expansion by banks. Now that interstate branch banking is the law of the land, and the Comptroller of the Currency is willing to authorize product expansion though bank operating subsidiaries, the holding company device is an anachronism for many banks.

The Federal Reserve, as the regulator of bank holding companies, is less than enthusiastic about holding companies going the way of the dinosaur. So the Fed is pushing the House bill, which would require expansion-minded banks to maintain their holding companies.

This cumbersome structure will not only impose unnecessary costs on an already overburdened industry, it will also limit the freedom of banks to select their regulator.

This is not about the "competition in laxity" that some believe existed among regulators a couple of decades ago. If that sort of competition once existed, it has long since disappeared. Weak banks are not allowed to switch regulators.

This issue is about strong banks being free to seek the most efficient and progressive regulatory regime. Nothing has been more important to the survival of the industry than its ability to eschew a regulator that impinges too greatly on banks' ability to compete.

The foundation for Glass-Steagall reform was weak from the outset. Support consisted primarily of the larger banks, and they lost much of their enthusiasm as the bill became laden with Federal Reserve turf issues.

The House leadership tried to shore up the foundation by attaching to the Glass-Steagall bill a regulatory relief bill. That helped generate support from small banks.

The President has threatened to veto the regulatory relief bill if the Community Reinvestment Act safe-harbor provision and small-bank exemption remain in it. So even the regulatory relief measure will be watered down as it wends its way through Congress.

Some people believe the best strategy is to get a bill, warts and all, out of the House. They believe its flaws can be remedied later in the legislative process.

The risks in that strategy are enormous and the potential benefits small. If the problems in the bill aren't corrected in the House-Senate conference committee, it will be exceedingly difficult to stop the bill's momentum at that point. Too many people will have invested too much energy and political capital to accept coming up empty-handed.

The potential to lose both the ability to sell insurance and the freedom to choose one's regulator is simply too great a risk for the industry to accept. If the House persists on its current path, the bill should be defeated.

Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.

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