Treasury Secretary Nicholas F. Brady yesterday called the nation's banking regulations "outmoded, burdensome and inefficient" and said that an "overhaul" of the structure of the financial system should be part of any package that reforms deposit insurance.

In a speech to the Arthritis Foundation in New York, Brady said the objective of a Treasury report due out around the end of the year would be to "modernize our financial system."

The Treasury was mandated under the 1989 thrift cleanup legislation to produce a report on the deposit-insurance system, which is widely blamed for encouraging savings and loan institutions to take risks because their executives knew that taxpayers would end up covering the losses.

Brady's speech was the most clear indication yet that the Bush administration would simultaneously tackle broad issues of changing the financial system and deposit-insurance reform.

Brady said banks were under pressure from new technology and increased competition from financial service companies such as money market funds, insurance companies and major corporate credit firms. He hinted that banks would be freed from geographical and business limitations that have been in effect since the Depression.

"Technology has eaten away at the system of rigid segmentation and protection," Brady said. "It has ... made the financial services industry into one market.

"In today's world, the automatic teller machine and the 800 number have rendered the restrictions on interstate banking obsolete."

A senior Treasury official said Brady's remarks reflected a strong desire to change banking regulations. "Technology has changed and the laws on the books haven't changed," he said. "Banks can't keep pace."

In addition, he said that any effort to bolster the banking industry had to look at "structural reform, {which} is safety and soundness as much as deposit insurance."

It is not clear whether the administration will be able to get a major financial-reform bill through the Congress, where some lawmakers have said they favor only changes in deposit insurance.

But Brady said that "the administration feels strongly that profitability is a key element of safety and soundness, and that deposit-insurance reform should therefore only be considered as part of a package that also addresses the structural flaws that impede profitability."

Brady, who had one hip replaced with an artificial joint last year, took advantage of the Arthritis Foundation dinner to jawbone banks and their regulators about the perceived credit crunch, telling them to make loans to financially sound customers.

His comments come amid widespread fears that a recession could threaten the soundness of some of the nation's biggest banks.

There is also concern that banks are hesitant to make loans, even to stable borrowers, because of recession fears and close scrutiny from regulators.

Brady said bank regulators should "use some judgment. Apply some balance."

He added that "we need a banking system that is a taker, not a shedder, of such risks."

He urged banks to stick by their customers.

He said that banks and regulators should not overreact to the economic slowdown.

"We have weathered this kind of storm before, and we will weather this one as well," he said.

The Treasury secretary tried to calm fears about the stability of the U.S. banking system.

"The banks of 1990 are not the S&Ls of the 1980s," he said. "They're as different as chalk and cheese."

He said that "virtually all" major bank-holding companies in the United States already meet international standards for bank capital that must be met by 1992.

He noted that the banking system has more than $200 billion in equity, equal to about 6 percent of its assets.

That compares with the savings and loan industry equity capital of less than $10 billion in 1987, or about 1 percent of assets.

A senior Treasury official added that banks were also not as dependent on real estate loans as thrifts were.