FEDERAL Regulators were absolutely right to move fast and seize control of the National Bank of Washington before it was totally insolvent. It's a melancholy moment for this city's oldest bank, but it follows, as the obituaries used to say, a long illness. The cause of the failure is not the slowdown of the economy or the decline in the real estate market. NBW is the victim of years of mismanagement and internal quarrelling. New managers took over two months ago in a valiant attempt to rescue it, but the erosion had gone too far.
Two weeks ago the parent holding company announced heavy losses last spring and said that it no longer met federal requirements for capital. That struck an ominous note. Capital is the owners' money. If it's gone, further losses fall directly onto the federal deposit insurance fund. When the NBW's holding company then declared bankruptcy, the regulators immediately seized the bank, although it still had some capital remaining.
The country has learned something from its horribly expensive experience with the S&Ls. Last summer Congress strengthened the regulators' authority to intervene before institutions go completely broke, and in the NBW case they used that new power. Rigorous enforcement of the capital standards is the first line of defense against a repetition of the S&L disaster.
For NBW's depositors, nothing has changed. There's new management at the bank, put there by the federal comptroller of the currency, but all its commitments are unchanged. It's still open at the usual places and hours, and its customers can put money in or take it out as before. Each person's deposits continue to be insured up to $100,000, and that money is literally as safe as if it were invested in Treasury bonds. Like the bonds, the insured deposits are fully backed by the government's credit.
What happens to NBW now? That's not clear. The government will try to find new owners prepared to put up the necessary capital. If there are no offers, perhaps the bank will be closed and its accounts transferred to another bank. That would certainly be a deep misfortune for the employees who have stuck with NBW through its years of deepening troubles. It would bring to an end an important thread in the fabric of the city's history, reaching back to its founding in 1809. But it would also be part of a national trend. There are far too many banks in this country to survive efficiently and profitably. Through merger or failure, many familiar names in American banking are disappearing. That trend is irreversible.