Several hundred federally insured savings and loan association are insolvent, and yet they continue to take deposits and make loans. Why haven't the federal regulators closed them down? Because the federal regulators can't afford it. To cover the losses and pay the depositors would require more money -- much more -- than the insurance fund now contains. So the insolvent S&Ls stay in business, with the risks of failure rising and the potential losses growing.

The Treasury and the regulators now propose a way out of this dilemma. They suggest that Congress create a new corporation to raise $15 billion by selling bonds to the public. The $15 billion would then be lent back to the S&L insurance fund, to prepare it for the failures that the regulators anticipate over the next several years. It's a sensible and useful idea. While it could fairly be called a rather temporary stop-gap, that gap urgently needs to be stopped.

This proposal apparently ends the long debate within the government over ways to increase the insurance fund. The original concept was to make the S&L industry itself bear the cost -- and there's a good deal of justice to that. The trouble is that the conventional method -- increasing the premium assessed on deposits -- would put an extremely heavy burden on all S&Ls, weakening even those that are now strong.

The deposit insurance system is out on the fringes of the federal government as the law defines it, and the authors of this plan have introduced the new corporation in the hope of placing the bonds beyond the reach of the Gramm-Rudman-Hollings Act. G-R-H restricts federal borrowing authority as well as spending. The argument will be that it's not really the federal government that's doing the borrowing. That's a bit tricky. But if deposit insurance premiums don't count as federal taxes, then it's reasonable to say that borrowing for the same purpose is not federal borrowing.

The failure of a large financial institution, or several of them, could jeopardize all of those careful strategies for getting the budget deficit under the G-R-H requirements. If Congress makes no alternative provision, a sudden drawdown on the insurance fund could force it to appropriate very large amounts from the Treasury. Here the Treasury is offering an alternative. It hopes to have the legislation enacted and the corporation in operation by next fall -- reflecting a sense that the risks are rising and that there isn't unlimited time to prepare for them.