Just when it appeared financial modernization legislation was finally dead for this year, the House leadership resuscitated it. An ad hoc group headed by Rep. John Boehner, R-Ohio, has been given the task of trying to push the bill through the House.

Neither the Banking Committee nor the Commerce Committee has been able to fashion an acceptable package. Barring a miraculous change of attitude and approach by lawmakers, the "Boehner Committee" is unlikely to succeed where the others have failed.

Three important Republican constituencies - banks, insurance companies, and investment banks - have locked horns on the bill. Republican lawmakers have been trying their damnedest not to offend any of the three.

The result is a very bad bill that no one likes. When supposedly free- market Republicans on the Commerce Committee adopt a provision allowing banks to enter the insurance business only by acquiring an existing firm, you know the public interest has taken a back seat.

Folks in Washington are wringing their hands over the inability of Congress to enact financial modernization legislation. They decry the fact that the marketplace - with an occasional assist from the regulators and the courts - is restructuring the financial services industry without congressional involvement.

I have a different view. While it might or might not be desirable for Congress to lead the way on important reforms in financial services, it has seldom, if ever, done so.

Interest rate deregulation was forced by the marketplace and accommodated by the regulators. The process was well under way by the time Congress enacted decontrol legislation in 1980.

The restraints on geographic expansion were not removed by Congress until long after they had ceased to be meaningful. The states led the way with regional banking compacts, and the regulators allowed acquisitions of failing banks and thrifts across state lines. Congress eventually ratified the result.

The restrictions on products and services are now being bypassed. Technological advances, intense competition, regulatory actions, and court decisions are combining to make Depression-era laws irrelevant.

Something far worse could happen than a failure by Congress to enact financial modernization legislation. Congress could enact legislation along the lines proposed by the House Banking and Commerce committees.

The banking panel would discriminate against traditional bank holding companies, create another regulatory bureaucracy, diminish the existing powers of national banks, and require banks to offer lifeline banking services to all comers. The commerce panel fixed a couple of these problems, but it so emasculated the national bank charter that no banker of sound mind could even consider supporting the package.

The banking, investment banking, and insurance industries are merging. It will happen whether Congress acts or not. If Congress doesn't enact legislation before the merging of these industry groups, it will enact legislation to ratify the result.

Banks cannot and should not accept any legislation that ties the industry's hands any tighter than they already are bound. The only freedom banks have obtained in the past two decades has come because banks have had charter options that allowed them to seek the most enlightened regulatory forum.

Any bill that restricts in any way the authority of national banks or their operating subsidiaries should be rejected out of hand. There's nothing in any of the pending legislation that's worth any loss of regulatory freedom.

What amazes me is how the competitors of banks - insurance companies and investment banks - could be so shortsighted in their legislative objectives. Most of them will, in a few years, either own or be owned by banks. Why put so much energy into diminishing the value of a charter that will soon be part of the family?

Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and CEO of Secura Group, Washington.

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