CONGRESS IS now getting to work on reform of the deposit insurance system. The prevailing opinion is that deposit insurance was responsible for the enormous losses of taxpayers' money in the S&L bankruptcies and that the great lesson of that unhappy experience is the need to limit deposit insurance sharply. But before you accept that thought, you ought to consider another lesson of those bankruptcies.

While the United States has just been through an enormous wave of financial collapses, the unemployment rate has been untouched by it. In those collapses, S&Ls lost huge amounts of their depositors' money -- probably well over $150 billion -- but no one has lost a job as a result of it except the people who worked directly for those S&Ls themselves. There was no cascading effect, as there was in 1933, when banks' failures destroyed businesses that were their customers. A bank's failure could wipe out its depositors, forcing them to default on their mortgages and debts, in turn throwing other banks and businesses into jeopardy.

Americans have forgotten how financial panics used to sweep through the country, turning financial failures into depressions. It hasn't happened since deposit insurance was enacted two generations ago. For all the things that went wrong in the financial world of the 1980s, the deposit insurance system worked. It prevented the S&Ls' losses from becoming contagious and spilling over into the real economy of jobs, production, sales and investment.

The system can certainly be improved, and Congress is quite right to reconsider it. The calendar for the coming months is crowded with hearings on the subject. But any reform will be dangerously misguided if it succeeds in reducing risks to the federal government only by increasing risks to depositors.

Congress has repeatedly been told that it was the deposit insurance that accounts for the tremendous costs of the S&L fiasco. Wrong. It was deposit insurance that has thrown the losses onto the federal budget rather than onto depositors. Some economists have been arguing that less deposit insurance, or none, would make both S&L managers and their depositors more prudent. That idea is more attractive in theory than in practice.

The present insurance system can be refined to the benefit of both the public and the Treasury. But the principle of deposit insurance is entirely sound. Blaming it for the S&L bankruptcies is like blaming your insurance policy for the fire that burned your house down.