ITHACA, N.Y. — A remarkable sleight-of-hand took place during President-elect Bill Clinton's recent economic conference in Little Rock, Ark. Before the summit, it was generally understood that many of the nation's banks were, at best, extremely fragile. Until the summit, conversations in policy circles had focused on whether the industry could even survive the 1990s. Less than three years ago, the only interesting issue seemed to be whether the taxpayers' tab for the bank bailout would be bigger or smaller than the $100-billion tab for the savings-and-loan bailout.

But during the Clinton summit there was no talk of bailouts, or even of a banking crisis. Instead, the conversation centered on how to enlist the assistance of the nation's banks to pump money into the rest of the economy. Vice President-elect Al Gore wanted to discuss how to ease bank regulations in order to "free up a lot of money that entrepreneurs could get a hold of to expand and so forth." Gore wondered "(w)hat order of magnitude stimulus could come from easing those bank regulations."

The Clinton Administration, assisted by low interest rates, has deftly removed the nation's banks from the intensive-care ward and thrust them into surgical garb. It is now telling them that they must join in finding a cure of the nation's economic ills. Not surprisingly, the banking industry heard the clarion call for deregulation and reacted with enthusiasm.

Clinton nodded encouragingly as bankers advocated jettisoning recently enacted safety and soundness laws like the Financial Institutions Corporation Improvement Act of 1991--described by one conference participant as a "Draconian rollback of the ability of financial institutions to lend." This is a law that encourages higher capital levels for the nation's banks and requires the prompt closure of insolvent financial institutions. Other speakers cynically argued that abandoning the existing safety rule would inject a huge amount of capital into inner cities and small businesses, two important targets for Clinton.

From Clinton's perspective, banks are a particularly attractive candidate to play the role of economic witch doctor. After all, the budget deficit will bar new government spending programs to stimulate growth. In the short run, easing restrictions on banks would allow Clinton to have his fiscal cake and eat it, too, by holding government spending down and letting the banks stimulate the economy.