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T HE BAILOUT by federal bank regulators of financially precarious Empire of America represents a constructive, though painful step. Gorged on debt and starved for capital, Empire was otherwise headed for collapse.

Experts think it has no chance in its present form of meeting the new, stringent capital requirements that all thrift institutions must meet in 1995.

This is Buffalo's most notorious chunk of the national savings-and-loan crisis, and it is not a pretty sight. So far, Empire is the third largest of the 333 thrifts around the country taken over by Washington's new Resolution Trust Corp., which Congress established last year to manage the colossal bailout.

It is at times like these that depositors can appreciate the federal bank insurance program, enacted in the 1930s, that insures everyone's savings up to $100,000. To that point, no Empire depositor will be out a dime.

Of course that may cost the federal treasury a pretty penny. Nothing is free, and Empire's ultimate bailout costs could range up to $1 billion, with a substantial portion of the bill sent to the American taxpayer.

The 16,000 investors who bought Empire stock for $5.63 a few years ago are not so lucky. Their investment has drained away until it is worth less than 20 cents a share.

If matters turned around and Empire returned to profitability in the distant future, we would hope the investors could get something more.

Right now, though, theirs is a blighted faith. Kent Dixon, Empire's president and chief executive officer, probably overtaxed the gift of understatement when he said he didn't think the long-run outlook "is terribly optimistic for shareholders."

As for Empire itself, it must bank its future on hopes that smaller is better. It could be merged or dismembered. Even its brightest future contains substantial downsizing for its 125 branches in five states with $8.8 billion in assets.

One approach would be to sell off Empire's holdings outside New York State (in Texas, Florida, Michigan and California) to pick up as much cash as possible.

Whether that happens or not, Dixon and the Resolution Trust officials really running the show will be working to minimize the bank's losses, conserve its assets and preserve its customer services.

What emerges could be a trimmed-down institution with many fewer branch offices and those mostly concentrated in Western New York. Empire could end up looking very much like the old Erie County Savings Bank it grew from in the buyout binge from 1981 to 1986.

It will be good for Western New York if the re-emerging institution, however merged or slenderized, continues to be headquartered here. Buffalo has too few headquarters of large corporations and suffers from that scarcity.

Finance has been one of the area's strengths, and the troubles of the savings banks have been a blow.

Perhaps by going back to banking basics -- where long ago it all began -- Empire can achieve a new success. We hope so.

Whether doing business as Erie County Savings, the Big E or Empire, this institution has become a part of the financial fabric of Western New York that is too familiar to lose.

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