This is bank reform?

Under a plan offered by the Bush administration, any commercial company -- say, Exxon, U.S. Steel or Topps bubble-gum company -- could own your bank. Moreover, your bank would be allowed to expand into the business of selling stocks, bonds, mutual funds and insurance.

Uncle Sam would not only insure your regular account up to $100,000, but would let you keep $100,000 in retirement funds in another insured account. And you could duplicate that $200,000 worth of insurance at as many banks as you have the money to deposit.

No kidding.

All this is contained in a 680-page tome detailing a "reform" program that Treasury Secretary Nicholas Brady says would make the American banking system safer and more competitive. It would allow commercial and industrial companies to own banks for the first time since Depression days and let banks operate across state borders.

Permission to engage in the sale of non-banking financial services and products would be restricted to better-capitalized banks, separating their non-banking functions through subsidiaries.

These ideas should send danger signals flashing all over the place. Rep. Jim Leach (R-Iowa), a respected member of Congress on economic issues, wisely observes: "It's a strength of our system, not a weakness, that we keep commerce and banking apart."

Rep. Edward Markey (D-Mass.) asks: "If Exxon becomes a bank, are depositors better off? Or are they simply further away from those who control the bank?"

At a briefing on the plan, I pressed Brady for reassurance he was not inviting the same speculative fever that ruined S&Ls to do the same thing to banks. He said it wouldn't happen. There would be swifter intervention by better regulators: "They're not going to wait until they get down to zero percent {of equity capital} like you got in the S&L industry."

Even with its current problems, he said, the banking industry is much better capitalized than the S&Ls ever were -- on the order of $200 billion for the banks, compared to $10 billion for the S&Ls a few years back before they started to unravel. "There was every incentive for a 'heads you win, tails I lose' type operation {in the thrifts}," Brady said.

And finally, Brady pledged that his system would have sufficient safeguards, or "boundaries," to inhibit banks from succumbing to the same speculative enticements that ruined the S&Ls.

But it takes more faith than I can muster to accept Brady's flat assurances that the non-banking functions, as well as non-banking ownership, can be packaged so neatly in compartments separated from the bank and its purely banking functions.

For all of the emotion and unquestioned commitment that Brady puts into a worthy goal, such reassurances have not sold Congress. There, skeptics abound, as they do among consumer groups, financial analysts and small banks who see bigger ones as the major beneficiaries.

My most serious concern about the Bush/Brady plan is that the secretary succumbed to banking-industry pressure and abandoned his own instinct to push the one most-needed reform: a significant paring back of federal deposit insurance. Taxpayers would still be stuck with the "too big to fail" principle. By guaranteeing full recovery of all deposits, uninsured as well as insured, that principle has haunted the American financial system for the past decade.

It is evident from the text of his report that Brady waffled at the last minute on a meaningful proposal he had contemplated -- limiting insurance to a single $100,000 account. A bankers' lobby, working through FDIC Chairman William Seidman, forced Brady to water down his proposal to a $100,000 limit per person per bank. Brady then added a new gimmick: a second $100,000 limit per person per bank for retirement savings. (But insurance for "brokered" accounts would be eliminated.)

To insure $200,000 of deposits per person per bank would continue to make a shambles of the original intent of federal insurance, which was to protect those with few resources. It invites bank managers to be imprudent. Depositors have little incentive to keep an eye on management, so long as Uncle Sam makes good on a bank's mistakes.

As his own report shows, Brady had contemplated coupling a system-wide limit of $100,000 insurance with "safe, uninsured money-market accounts that might invest only in full-faith-and-credit government securities." He should have stuck with that idea, and Congress would do well to examine it, along with other ways of tackling the deposit-insurance problem.

It would be stupid and against the public interest to perpetuate a benefit for the less than 6 percent of the households in America that can take advantage of insuring as much as $100,000, when we know that 100 percent of the households have to assume the liability for that insurance.