well for the banking industry in the political and legal arenas. Regulatory and judicial developments have put banks in the driver's seat in their effort to become more competitive. If one looks at just the congressional scene, the picture is bleak. Congress is moving to impose on banks a $12 billion tab for cleaning up the remnants of the S&L mess. Moreover, the banking industry's two priority bills - Glass-Steagall reform and reduction in the regulatory burden - are being held hostage by the independent insurance agents and their friends in the House leadership. The picture elsewhere is considerably brighter. The Federal Deposit Insurance Corp. has announced another reduction in deposit insurance premiums. Healthy banks will soon be paying the lowest premiums in the history of the FDIC. A unanimous decision earlier this year by the U.S. Supreme Court in NationsBank of North Carolina v. Variable Annuity Life Insurance Co. represents a victory for the banking industry of potentially enormous magnitude. At issue was a ruling by the Comptroller of the Currency that variable annuity life insurance contracts are financial instruments permissible for national banks to offer their customers. The court declared that the Comptroller has broad latitude to define financial activities permissible for national banks and can only be overturned when the determination is arbitrary. The Comptroller intends to authorize national banks to engage in a broad range of financial activities. Most activities will be permitted in the bank itself. A few that involve greater potential risks will be authorized in bank operating subsidiaries. State banking authorities will not stand by idly while the Comptroller promulgates rules to make national banks more competitive in the marketplace. Many states already have laws that automatically give state banks whatever authorities national banks possess, and other states will change their laws. The Federal Reserve has heretofore been very reluctant to test the limits of its ability to expand the activities of bank holding companies. The Fed's timidity will almost certainly begin to wane. The Fed is struggling to maintain the relevance of the bank holding company form of organization. The Fed must liberalize significantly the bank holding company charter or banks will jettison their holding companies. About the only potential fly in the ointment for banks is the Congress. It could do something really regressive like enacting the provisions in the current legislative package in the House. That legislation would impose a moratorium on the Comptroller and lock banks into the holding company format for their expansion. Much of the pressure on regulators to eliminate unnecessary burdens and restrictions would be alleviated. The momentum banks have fought so hard to achieve would be lost. The banking industry has suffered massive erosion of market share for the past 20 years in its traditional lines of business. Either banks will be allowed to find new ways to evolve or they will suffer the fate of the S&L industry. Trade groups are usually judged by the things they are able to make happen in the legislative arena. It would be more appropriate, for the foreseeable future, to judge the bank trade groups by the bad things they are able to prevent from happening. While legislation to modernize our nation's financial system would clearly be in the public interest, the banking industry doesn't have to have legislation right now. The regulatory agencies already have the authority to free the industry from most of its shackles. They will almost certainly move to do just that if they are protected from punitive Congressional countermeasures. 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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