Banks Sink Lower

SMALL upticks in economic data suggest that the recession in the United States has bottomed out, and that the economy is beginning a slow recovery. But in America's troubled banking industry, it appears that conditions will get still worse before they get better. Last month the Federal Deposit Insurance Corporation, which previously had projected that 340 US banks will fail in the next two years, raised that number to 440 banks. The value of the assets held by banks on the FDIC's ``problem list'' is $418 billion, up from about $400 billion just a few months ago.

Testifying on Capitol Hill this week, Comptroller General Charles A. Bowsher said that the nation's deposit-insurance fund, worth $8.4 billion at the end of last year (down from $18 billion in 1987), could run out of money by the end of the year. He projects that, as a result, a taxpayer bailout of commercial and savings banks may be required, though on a smaller scale than the massive bailout under way for the savings-and-loan industry. (Mr. Bowsher accurately forecast the S&L debacle.)

The Bush administration earlier this year sent to Congress a proposal for comprehensive banking reform. Besides shoring up the deposit-insurance fund, the package would raise banks' capital requirements, and it would improve the efficiency and competitive of banks by authorizing interstate banking and by allowing banks to branch out into other financial services such as selling securities and insurance. Not surprisingly, the bold plan has encountered a lot of controversy and resistance in Congress.

Congressional leaders now say they likely will focus on a bill to increase funds for the FDIC's rescue operations, and will not attempt to enact comprehensive legislation by September, as President Bush had hoped. That probably makes sense, as the gloomy news continues to roll in. Yet without the urgency created by the immediate insolvency crisis, Congress - with the encouragement of special interests - might ignore the need for long-range bank reform, one of those complex issues without a strong grass- roots constituency. Bush and members of Congress who recognize the need for reform will have to fight to keep the issue on Congress's agenda.