EACH ADDITIONAL indication of trouble in the banking system gives greater importance to the broad reorganization of banking law now being drafted by the Treasury Department. The federal agency that insures bank deposits has just increased its estimate of this year's losses. It also reports that a weakening economy from the District of Columbia northward through New England is reflected in increasing shakiness among bank loans there. Banks' losses on real estate loans in particular continue to rise.
The banking system as a whole is not in any immediate danger, but it is under strain. If it is to be returned to stability, its structure is going to have to be changed. That's the question that the forthcoming Treasury proposals are to address.
Banks perform two essential functions. They give people a safe place in which to keep their money -- guaranteed safe by the federal government, which insures their deposits up to $100,000. Banks also put those savings usefully to work in the economy by lending them to people to buy houses, expand businesses, finance trade and so forth. Currently those two functions are at war with each other.
The federal regulators have been leaning on the banks to be more careful in investing their depositors' money and protecting, not incidentally, the federal deposit insurance fund. But some politicians -- most recently John Sununu, the president's chief of staff -- have been pushing the regulators in the other direction, urging them not to curtail the flow of credit on which the economy depends. Mr. Sununu evidently fears that stricter lending will aggravate the recession, and that's why he tried to block the reappointment of Robert L. Clarke as comptroller of the currency -- that is, as regulator of the national banks.
President Bush has now settled this dispute the right way by offering a second term to Mr. Clarke, who has been doing a difficult job well. But the underlying quarrel is far from ended. It will emerge again on a grander and louder scale when the Treasury's banking bill becomes public and begins moving through Congress.
The tension between the banks' responsibilities is inherent, but it is particularly sharp just now. The economy is coming out of a decade of easy credit, to which a lot of borrowers have happily become accustomed. But as the wave of bank failures suggests, it wasn't sustainable. A new balance is going to have to be struck between safety for depositors and credit for borrowers. Beneath all the technicalities of the coming collision, that will be the basic issue in the next banking bill.