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Treasury Plan Would Be Disaster for Banks

January 06, 1991

The article, "Treasury May Limit Insured Accounts to Three Per Customer" (Nov. 22), details a proposal that could be a disaster in the making for all banks and savings institutions--the healthy ones as well as those struggling to stay afloat.

What would it do to the economy if there was a run on most of our banks at the same time? There are many people in this country who use more than three banking institutions or who have more than three insured accounts. There must be billions of dollars that would be left uninsured if this proposal became law.

The net result could be a tremendous flight of excess uninsurable money away from banks and S&Ls and into other government-backed investments such as Treasury bills.

And many other savers, when faced with a choice of uninsured accounts here and uninsured banking outside of the country, probably would choose to transfer a lot of this excess money to offshore banks with higher interest rates.

The Times' story ended with a quote from Bert Ely, an S&L analyst: "I don't think it will fly. You will hear a howl like you wouldn't believe." Let me be on record as the first to howl.

JAMES C. MCNAUGHTON

Simi Valley

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