In our new economy of eliminated government budget deficits and efforts to shrink government, we should be trying to reduce the federal safety net rather than expand existing ones or create new ones.

Two legislative proposals would do just that, and the incoming Bush administration should "just say no" to both of them.

The one aiming to double federal deposit insurance to $200,000 would unnecessarily expand the federal safety net. Testifying before Congress last February and later before a Federal Deposit Insurance Corp. roundtable on reform, I was alone in arguing against this plan, even before the heavyweight trio - Federal Reserve Chairman Alan Greenspan, Treasury Secretary Lawrence Summers, and Sen. Phil Gramm - denounced it. The Bush administration will have more than enough ammo to kill this proposal.

Time will show that a newer proposal - for a federal insurance charter and guaranty corporation - is likewise unnecessary. It assumes our dual banking system is a success that somehow should be mimicked by the insurance industry. The reality is that this system is a needless perk that allows bank management a choice of regulator. And the system should be replaced by one truly independent federal banking regulator - an agency that would not be part of the presidential administration. Nor should this regulator be the Federal Reserve System, which ought to be limited to its original monetary management mandate.

The basis of my argument is the simple managerial concept of authority equals responsibility: Since the federal government has the ultimate responsibility to backstop (bail out) the banking industry, it should also be the ultimate authority in regulating it. We should have learned this lesson when taxpayers in all 50 states bailed out the savings-and-loan industry even though close to two-thirds of the problems reportedly were concentrated in California, Texas, and Florida, where regulators were criticized nearly as much as the thrifts.

Realizing that it is virtually impossible to dismantle the existing patchwork of 50 state and three federal banking regulators, we should not replicate it for the insurance business. While the concept of an independent federal insurance regulator has considerable appeal, we will never be able to eliminate the 50 politically powerful state insurance bureaucracies.

Thus, we are better off maintaining the status quo. The best argument for doing so is seen in the pitfalls of the proposed National Insurance Guaranty Corp. that would mimic the FDIC. It would have one fund for life and health insurers and another for property and casualty insurers. The Treasury Department would extend an initial line of credit.

History has shown that once a federal safety net is established - either for deposit insurance or "too big to fail" banks - it cannot be retracted. When the insurance industry has its version of the S&L crisis, whether it comes from significantly depreciated financial assets or a natural disaster, Treasury will have no choice but to backstop the system.

A federal safety net for the insurance industry would expand even more with the creation of a new class of "too big to fail" insurance companies. So you can be sure the insurance lobby - and that portion of the banking lobby with significant insurance business - will support this latest federal insurance charter proposal.

The insurance industry, like its banking counterpart, may agree to pay the small price of compliance with a weakened Community Reinvestment Act as the quid pro quo for this federal subsidy. But who would defend the Treasury against a federal safety net?

Mr. Thomas is a lecturer in finance at the University of Pennsylvania's Wharton School.

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