"Maybe I'm a Don Quixote type," muses Peter Wallison, Ronald Reagan's former general counsel and one of the earliest and most pertinacious promoters of bank reform.

Since his Treasury Department days in the first part of the Reagan administration, Mr. Wallison has advocated the broadening of bank powers.

Same Ideas a Decade Later

While the names and faces at the Treasury have changed since then, and Congress has considered an array of reform proposals, Mr. Wallison - now a banking lawyer - is stalwartly pushing the same reform ideas he first presented almost a decade ago.

Banking is a declining industry, Mr. Wallison says, and bankers need every advantage possible to maintain their strength. But instead of enacting measures to bolster banks, Congress has continued to saddle bankers with unreasonable regulations that will ultimately slow them down, he says.

"What we have to do is find a mechanism for an orderly shrinking of the industry."

Mr. Wallison claims to be fully recovered from his stint as a public servant, when he worked first at the Treasury with Donald Regan, and later at the White House. Yet he occasionally regrets that he was not more aggressive at the Treasury in promoting new powers for banks and reduced regulations. "My criticism of our work is that we were too timid," he says.

"We should have proposed legislation much like what the Bush administration proposed. It would have been very radical at the time, but it would have set the terms of the debate."

'A Catastrophic Bill'

Unfortunately, the Bush administration's follow-through was less admirable, Mr. Wallison says. After putting so much time and effort into the process, administration officials ultimately succumbed to compromises that weakened the bill.

"It was a catastrophic bill from the standpoint of the banking industry," he says.

Mr. Wallison dresses impeccably in the conservative manner of an investment banker. His equally impeccable office at Gibson, Dunn & Crutcher is more like an elegant living room, looking out at the city from a wall of large windows.

Mr. Wallison, cordial and self-possessed, is surrounded by mementos of his White House years. On the wall behind his desk hang a framed letter from President Reagan and a large photo taken in the Oval Office of Mr. Wallison, the President, and Mr. Regan.

Sees Salvation in Diversification

Mr. Wallison believes that banks should be allowed to diversify their activities, reinvesting capital in areas of the economy that are more lucrative than commercial loans. This idea formed the centerpiece of the proposals he crafted at the Treasury Department.

"My perspective is perhaps somewhat old-fashioned," he adds. "I believe there's been too much emphasis on capital."

Regulators have been forced by Congress to focus on this single measure almost exclusively, he says. A better approach would be to use a broader range of factors to gauge a bank's health.

"You take all of those things together and say this is a healthy institution," he says. "That's what regulators should do and that's what they always did until Congress became enthralled with capital."

Parallels with Tabacco Industry

Mr. Wallison likens the current state of banking to that of the tobacco industry a few decades ago. Expecting a decline in demand caused by deepening concerns about the health effects of smoking, tobacco companies turned to alternative investments to maintain their profitability. This diversification ensured their survival, he says.

But unlike the tobacco giants, banks have been barred from diversification by government regulation. Without a change in these laws, he says, the outlook for banks looks bleak.

Mr. Wallison has been watching Congress for a long time. Born in Brooklyn, he got his first taste of Washington at the age of 14, when served as a page in the House of Representatives. Many years later, stints in both the Nixon and Ford administrations established him as a player in Washington.

Married with three grown children, Mr. Wallison says he is immensely happy to be back in private practice. He enjoys the intellectual challenges of law - which are much greater than those in government, he says.

Ms. Cummins writes for the Medill News Service.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.