In just the past two years, Depression-era images of depositors camped outside savings and loans in Maryland and Ohio have reminded us of the disruptive and painful consequences when individuals lose confidence in their financial institutions. In those cases, state-insured institutions were undermined by fraud and scandal, and the state insurance funds were inadequate to cover large-scale withdrawals by anxious depositors.

Today we face a more massive problem -- the insolvency of the Federal Savings and Loan Insurance Corporation, insurer for more than 3,000 thrifts in this country. Both houses of Congress have passed legislation to provide infusions of capital into the fund. The Senate bill calls for $7.5 billion; the House puts up $5 billion. In my judgment, both figures are too low, but they are a start.

On this page {May 5}, Treasury Undersecretary George Gould urged that Congress move quickly to recapitalize the FSLIC. I agree. We have delayed far too long.

But the undersecretary took a wrong turn when he attacked the Senate's bill as "loaded with controversial amendments that have no bearing on efforts to protect people's savings." The amendments to which Gould referred are controversial, as are most attempts to reconcile powerful competing interests. But the Senate package would have a significant -- and positive -- bearing on efforts to protect people's savings.

Severe strains in the thrift industry are well documented: 445 thrifts across the country have no capital and are losing, in aggregate, $10 million a day; according to the General Accounting Office, the FSLIC is insolvent, with a deficit of $6 billion.

But shoring up the FSLIC alone will not ensure the long-term protection of depositors' savings. The Senate bill marked a necessary, and long-deferred, step toward updating and rationalizing the laws governing this country's financial institutions -- a process that has everything to do with the safety of thrift and bank customers' deposits.

Modern telecommunications and information technology have made the nation's banking laws hopelessly outdated. Capital markets have been internationalized in ways never imagined even 10, let alone 50, years ago. Armies of creative "loophole lawyers" have invented new markets for participants in old financial service industries.

Gould and others have suggested that Congress do nothing more than address the immediate crisis in FSLIC. In the face of growing concerns about poor supervision and inadequate regulation of financial institutions in a rapidly changing marketplace, such a shortsighted step would be irresponsible.

After the Great Depression, Congress enacted several laws to ensure the future stability of the banking system: federal deposit insurance to protect the deposits of consumers; the Glass-Steagall Act to ensure the integrity of the banking system by prohibiting banks from engaging in the securities business; the Bank Holding Company Act to avoid "undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices" by limiting the other activities of banks.

For the better part of 50 years, these laws served us well, as the United States developed the world's strongest banking system and most liquid and efficient capital markets. But the line between banking and commerce blurred dramatically over time. In the late 1970s, securities firms took advantage of federal restrictions on bank and thrift interest rates and offered the public money-market funds, an uninsured but generally safe way for depositors to gain higher returns on their money.

In the early 1980s, all sorts of commercial firms got into the banking business through the creation of "nonbank banks," exploiting a loophole in the banking law that defines banks as institutions that both take demand deposits and make commercial loans. Subsequently, banks were able to exploit the same loophole to circumvent federal restrictions on interstate banking. Banks and thrifts have also been able to expand their activities through decisions by sympathetic federal regulators and state legislatures.

These changes have not all been negative, but they have occurred in a helter-skelter fashion, without sufficient consideration by policy makers as to the potential dangers they may pose to the safety and soundness of our system, competitive equality among the various providers of financial services and the long-term interests of consumers.

The Senate bill puts those issues on the table. Its key provisions are simple: one-year freezes on the ability of federal and state regulators to authorize new powers for banks, on the creation of any new nonbank banks and on the ability of existing nonbank banks to increase significantly those banking activities currently carried on through legal loopholes. The one-year window would give Congress time for full hearings and the development of comprehensive legislation.

The bill also is intended to create incentives for all the players in this area to seek -- not stall -- such legislation after the period has expired. The scheduled end of the freeze will be reason enough for all the parties to join in the crafting of new ground rules -- except for nonbank banks. They would be big winners if no further legislation were adopted; that is why the bill makes the interim restrictions on their business permanent, and harsher, if Congress does not act.

Given adequate time for Congress to consider legislation and with built-in incentives for all interested parties to seek changes, our ultimate goal will be within reach: an evenhanded, rational legislative approach to correct inequities and distortions in the current financial marketplace, protect the savings and investments of financial services consumers and ensure the widest possible access to safe capital markets.

The writer, a Democratic senator from Connecticut, is a member of the banking committee.