Oh, how is goes against the grain to write this column. I'm an unabashed devotee of the marketplace. I don't like government rules that impede competition.

My instincts were to cheer when I learned that Blackfeet National Bank had sought permission to issue a retirement CD with tax-deferred, annuity-like features.

And my instincts were to hiss and boo when I learned Rep. John Dingell, protector of the Wall Street interests, and Sen. Christopher Dodd, guardian of the insurance industry, were doing some heavy-duty arm twisting to get the regulators to ban the CD.

Alliance Formed

Sen. Dodd has teamed up with Sens. Alfonse D'Amato, Richard Bryan, and Lauch Faircloth to sponsor legislation to outlaw the retirement CD.

They give three reasons for their action: (1) the CD is too difficult for customers to understand, (2) the CD is too risky for banks to handle, and (3) the CD gives banks an unfair advantage over their competitors that don't have deposit insurance.

The first two arguments are the frivolous types one conjures up when searching for excuses to challenge something he's predisposed to dislike for reasons he'd rather not share.

If potential customers can't understand the retirement CD, I suspect most are intelligent enough not to buy it. If we don't have sufficient regard for our citizenry to accept that proposition, we can mandate proper disclosures.

Controllable Risks

As for the riskiness of the retirement CD to banks, it can't be anywhere near as risky as the loans banks routinely make. In any event, bankers and their regulators are clearly up to the task of identifying and controlling the risks associated with the retirement CD, particularly when insurance companies do so every day without the benefit of bank examiners.

The senators are much closer to the mark with their third point about banks having an unfair competitive advantage because the retirement CD is FDIC insured. I would state it a little differently, though.

I'm not particularly concerned about banks' competitors being disadvantaged by their lack of deposit insurance, as banks pay an exceedingly high price in terms-of regulatory restrictions and burdens precisely because they have federal insurance on their deposits.

Protecting the Little Guy

I don't like the retirement CD because it represents an unwise extension of deposit insurance. Deposit insurance was designed to protect the savings of relatively. small depositors who have neither the means nor the sophistication to distinguish between good and poor-quality banks. These small, unsophisticated depositors are clearly not a prime market for tax-deferred annuities.

Over the years the deposit insurance system has been stretched beyond recognition to the point where almost all depositors are fully covered almost all of the time.

Marginal, high-risk institutions have been given a free ride at great expense to the stronger, more responsible banks and thrifts and, ultimately, the taxpayers.

Enormous political damage has been done to the surviving banks and thrifts, which will be burdened for years to come by the-punitive legislation and regUlations adopted in reaction to the severe problems in the financial system.

Opposite Trend

Nearly every banking leader I have spoken with believes that one of the industry's most important priorities must be to curtail significantly the coverage of the deposit insurance system.

Indeed, I have been surprised by the number of bankers who believe the deposit insurance system should be abolished.

h is incongruous that just as the leadership of the banking industry is concluding that too much deposit insurance is bad for the industry's financial and political well-being, the Blackfeet National Bank introduces a product to expand it further.

Banks should have the right, directly or through affiliates, to offer the full range of insurance products, including tax-deferred annuities. Those products should not be insured by the FDIC.

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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