Illinois Insurance

Fassungslos and sobered by the savings and loan debacle in Washington is determined to protect taxpayers a second count - this time in the hands of non-commercial banks. Yesterday, William L. Seidman, the chairman of the Federal Deposit Insurance Corporation said that the determination, while still painting the bleakest portrait of the banking sector.

But many private economists, are a step in the political Gerangel, attention, there are more than a successful reform of the Bank of the Public Defender’s Office.

America’s banks, they discuss, economic dinosaurs, which quickly lose Darwin in the fight for money by lending money. If banks are master of the house Nation’s reliable amount of money they need more leeway to reduce costs and diversify services at the same time and place higher standards for financial responsibility.

This is not a big secret, as it can be controlled. The Treasury says that, taking into account a number of proposals, analysts say banks more efficient, more secure. This includes liaison guarantee deposits on the risk of investment banks and severely limits the opportunities for investment banks can do.

But by then, says Lawrence White, an economist at New York University, “is linked to a messy business”, as banks are forced to live - or die - by the economic logic of markets, not politics Logic of regulation.

Banks are Go-Betweens, most earn their daily bread by channelling savings of the nation stone, mortar and machinery. More aggressive and more effective they are, the more they make more money.

But banks are also public institutions of a type: deposits of cash, processors tens of billions of dollars in checks and electronic projects each day. Dumpfheit here is a virtue. And as Robert Litan, an economist at the Brookings Institution, contends that the tension between these two roles has made that the banking system and supervision authorities on these mourning. Need Security

Savings more effective, and whether the payments system is very safe if applicants need not address whether the money is left where and when the private sector should not be sharp, unexpected fluctuations.

That is why the Federal Reserve is ready, loans to banks, solvents are short of money. At least in part, it is also why as long as Washington tries to protect banks from competition and ensures that most investors against losses. It also explains why some banks - most importantly, Continental Illinois at Chicago - were considered too large doomed to failure, even if it badly their loans.

Lenders that in this harsh, but pickelige, regulated system ineffective. But the system by the lack of clarity, M. White said, because banks were cheap deposits insured by two people with few other options, where it ceases to money and a demand for loans at low risk posed by large enterprises need Working Capital and the Buyer vigorously house payments down.

Since mid-1970’s, but the conflict in banks’ dual function has been too clear. Harten competition for money market forced banks to pay higher interest on deposits and less predict these costs every month .

At the same time, Blue-Chip-borrower, she discovered capital cheaper could the sale of short-term obligations to the pension and investment funds. “You do not need a bank to confirm that General Motors was solvable,” says George Benston, an economist at Emory University. Deficits in consumer loans

And for something even worse, profits have been souring on the granting of loans to consumers for homes, cars and credit cards. The profit margins of these loans were razed stung thin bank overdrafts, they are packaged, such as securities dealers and large institutional investors.

At first glance, followed by the rush of high-risk banks, bonds, commercial real estate and Third World debt is foolish. But Mr. Litan seems to be a normal reaction to an industry, for as long as a creature of regulation.