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Bank customers who wanted to beat the $200,000 ceiling would have to open accounts in several banks. That's just what the Treasury would like, since the rule would dissuade depositors from piling into a struggling institution that was offering impossibly high interest rates in a desperate bid for customers -- as often happened in Texas in the '80s. But the Treasury opened a wide loophole by failing to junk its too-big-to-fail doctrine. Under that policy, which is intended to prevent runs on deposits at large institutions, the government makes good on the entire account -- no matter how sizable -- that a major depositor holds in a large bank. That particularly worries small-town bankers, who fear customers may flee to larger rivals.
The Treasury remained silent on the most pressing issue confronting banks: how to replenish the nearly broke Federal Deposit Insurance Corporation fund, which insures accounts. The beleaguered fund sank to a record low $8.5 billion after 169 banks failed last year. Without fresh cash, it could go bust by the end of 1991 if the current recession lasts all year. The Treasury left the details of rescuing the fund up to the FDIC and the banking industry. FDIC Chairman William Seidman later said that to rescue the fund, the agency might raise banks' insurance premiums 20% to 30% as of June 30 to pay interest on government borrowings of up to $15 billion.
Does the Treasury's reform program stand a chance in Congress? Experts say that limiting deposit-insurance coverage has the brightest prospects in the wake of the S&L bailout. Lawmakers may also look favorably on letting banks expand geographically. The odds are probably longest against permitting banks to diversify into new businesses.
Even if the program passed intact, it would hardly end the troubles of big banks overburdened with poor loans. "There is no magic solution that will fix the banks' problems," says Lawrence White, a New York University economist. "The banks made a whole lot of bad loans, and nothing is going to solve that over the short run." The long run is another matter. While the ambitious plan is certain to stir furious debate, the flexibility it promises just might yield a more profitable and competitive U.S. banking system in the next century.