President Bush said yesterday that bank regulations are "increasingly outmoded" and that his administration will introduce legislation next year to overhaul the banking system.

Speaking to the Association of Bank Holding Companies, Bush said "our banking system can never be truly safe if it's not also economically sound."

The speech indicated that the Bush administration is working up to a major reform package for the banking industry, rather than more modest changes in deposit insurance.

The Treasury Department is preparing a report on deposit insurance as mandated by the savings and loan cleanup bill passed by Congress in 1989. Treasury Secretary Nicholas F. Brady has said that the report also would outline possible changes in banking laws that have been in effect since the 1930s.

Those laws, which separated the activities carried out by commercial banks, savings and loan institutions and investment banks, have been eroded by changes in technology and the emergence of new types of financial-service companies that compete with banks.

"In the age of the ATM {automatic teller machine} and the 800 number and in the face of intense competition from non-banks to meet the ... the consumer's credit needs, we must rethink and reexamine our existing regulations and the need for change," Bush said.

The president's speech gave no particulars about what reforms the Treasury would recommend, prompting one banker at the luncheon speech to say, "Well, at least he said that banking is important."

But other bankers said that the speech at least indicated that the White House would put its weight behind bank reform.

"This obviously is going to be top White House business next year and will command the direct attention of the president," said Thomas Ludlow Ashley, president of the Association of Bank Holding Companies and a college friend of Bush's.

Bush asked the bankers for support in winning passage for legislation next year.

Ashley said he expected new legislation would introduce "market discipline" into the banking system in addition to regulatory discipline, so that banks do not take reckless risks with money insured by American taxpayers. "We understand the necessity to limit the safety net," said Ashley. "The weak shouldn't be propped up. They should be allowed to fail."

Such reforms have been the focus of attention in the wake of the costly cleanup of the savings and loan industry.

"What's at stake," Bush added, "is not just the confidence for the American people in the banking system, but the profitability and the competitiveness of a key American industry."