Who Would Stand Guard at the Firewalls?

Without enforcement, "firewall" is just a word.

Bank powers should certainly not be expanded unless there is confidence that the necessary firewalls would be well and enthusiastically enforced.

And there are good reasons to doubt this would happen.

An Understanding

The Treasury Department has not supported strong firewalls.

Furthermore, Comptroller Robert L. Clarke, whose office is a part of the Treasury, presumably reached an understanding on such issues with the administration while his nomination for reappointment was held in abeyance.

(Senate reaction to the prospect of his serving another term has been lukewarm at best, even on the part of some key Republicans.)

FDIC Held Hostage

There is reason, too, to doubt the independence of the Federal Deposit Insurance Corp.

Consider this little-noted zinger in Section 203(b) of the thrift bailout law:

"The term of any member appointed to the board of directors of the Federal Deposit Insurance Corp. before Feb. 28, 1993 ... shall end on such date." (This language applies only to people appointed to the board, not those who are members by virtue of other government office.)

A glance at the FDIC roster shows two members with the hammer over their heads: Andrew "Skip" Hove Jr. and chairman-in-waiting Bill Taylor.

They almost surely will be held hostage to the firewalls issue. Little subtlety will be wasted on showing them that their support will affect their chances for reappointment.

Even officials who favor stringent regulation have a hard time practicing it -- as the latest Wall Street scandal on shows.

Gerry Corrigan, the president of the New York Fed, has been consistent in calling for the creation of strong firewalls before any relaxation of Glass-Steagall. Nevertheless, he failed to blow the whistle on Salomon Brothers.

(The scandal will not enhance his career. Treasury Under Secretary Robert Glauber undoubtedly was less enthusiastic about shutting down an unlawful procedure. But his career will suffer less. Mr. Glauber can go back to Wall Street, through the usual revolving door.)

In any case, expanded powers such as corporate and stock underwriting authority would be of little if any use to a bank of less than $1 billion in assets. And many feel such powers could lead to more and even bigger bank failures.

Mr. Norbert A. McCrady heads McCrady/Midwest, a business and trade consulting firm. From 1976 to 1988 he was executive vice president of the Independent Bankers of Minnesota.

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