Back when I was in high school, a know-it-all buddy helped me overhaul my Ford Falcon's manual transmission. When we finished, the car had three reverse gears and one forward gear. You can understand why I grimaced whenever he offered his help again.

The banking industry reacts to offers of assistance from Congress in much the same way, with good reason. Congressional fixes often do as much harm as good. The credit crunch engendered by the FDIC Improvement Act of 1991 is one example.

Thus last week, when Senate Banking Committee Chairman Donald Riegle of Michigan and the panel's ranking Republican, Alphonse D'Amato of New York, announced a plan to streamline the nation's Byzantine bank regulatory system, many of you were mumbling "thanks, but no thanks."

Reason for Applause

This is one time, however, when applause might be the better reaction. Our regulatory system is so fouled up that it's hard to believe the alternative proposed by the congressmen could be worse. In fact, on paper, their idea looks pretty good.

The senators would replace the four-legged OCC-OTS-FDIC-FED setup with a super regulatory agency called the Federal Banking Commission.

The commission would be an independent agency run by five commissioners, including the secretary of the Treasury or his designate and a Fed governor.

The remaining three commissioners, including the chairman, would be presidential appointees subject to Senate confirmation. They'd be appointed to staggered six-year terms.

The Fed would lose its bank supervision function. The FDIC would no longer be the primary regulator of state nonmember banks, but as deposit insurer it would retain its backup enforcement authority as well as functions related to conservatorships and receiverships.

Its board would be reconfigured to include the secretary of the Treasury and the chairman of the banking commission.

The authors of the bill did not attempt to project cost savings, but it's common sense that over the long haul there would be considerable dividends. They believe the consolidation could be completed within 10 to 15 months of passing a law.

The consolidation idea isn't knew. In fact, it's as old as I am, having first been suggested in 1949 by the Hoover Commission. Reports from study groups appointed by later administrations -- the Hunt Commission report, the FINE study, the Grace Commission report, and that of the Bush task force -- included similar recommendations.

I think the fact that so many smart people have concluded over the years that the bank regulatory system should be simplified validates the idea. As Sen. Riegle said when he introduced the bill. "No thoughtful person would ever design such a system from scratch. In fact, no one planned our present bank regulatory system -- it's a product of historical accident."

Strong Contender

If bankers throw some support behind this proposal, it has a very good chance of becoming law sometime between now and the end of 1994, for a couple of reasons.

First, Congress has taken the lead on this bipartisan issue, with strong support from the administration. They've heard your complaints about regulatory relief, and this is a solution.

A bill promoted by House Banking Committee Chairman Henry Gonzalez is already making its way through that chamber. The idea is like a rocket sitting on a launch pad waiting for someone to push the right button.

Second, banks are exceptionally healthy at the current time, so any short-term confusion caused by the creation of a new agency shouldn't jeopardize the soundness of the industry and its deposit insurance fund.

Finally, turf fighting among the bank regulatory agencies will be reduced, because the Clinton administration has emasculated both the Office of Thrift Supervision and the Federal Deposit Insurance Corp.

Neither of those two agencies has a strong, independent leader. The only regulator capable of mounting strong opposition is the Fed. and right now there's no sign of extra bowmen on its parapets. (But Sen. Riegle Does expect an assault from the entrenched bureaucracies.)

One final statement by Mr. Riegle is worth noting:

"I believe strongly that the time has come for full consolidation of the supervisory responsibilities of the four agencies. Any alternative that doesn't go this far would simply result in another kind of regulatory hodgepodge."

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