Closed S&Ls; in Ohio Will Seek U.S. Insurance

Ohio Gov. Richard F. Celeste announced here Sunday night that Ohio’s 71 state-chartered savings and loans will remain closed until they individually apply for and qualify for federal deposit insurance, ending hopes that Ohio’s three-day “bank holiday” would end today.

Celeste also said that the Ohio Legislature will meet in special session today to work out emergency legislation to allow depositors to make partial withdrawals from their accounts even before the thrift institutions are allowed to reopen. He said he expects the legislation to be passed within 48 hours.

‘A Matter of Days’

Although Celeste refused to predict exactly how long it would be before all of the institutions would qualify for federal insurance--thus proving their deposits are secure and protected--and once again open for business, he said that he hopes that at least some will be able to reopen by the end of the week.

“It would be my hope that many of the institutions could reopen in a matter of days, rather than weeks,” Celeste said at a news conference at Cincinnati’s Lunken Airport. “I would be disappointed if a substantial number didn’t reopen this week.” Celeste’s action Sunday night followed his decision on Friday to impose a three-day bank holiday in an attempt to halt a massive run by depositors on the thrift institutions.

That action is believed to be the biggest shutdown of financial institutions since the Great Depression in the 1930s. It was prompted by a panic among customers after the collapse and closing of one state-chartered S&L;, Home State Savings Bank, which threatened to wipe out the state’s privately financed deposit insurance fund for other Ohio S&Ls.;

Customers of the other institutions, fearing that the state insurance fund would not be able to back up their deposits, began pulling their money out last Thursday, prompting Celeste to shut them all down Friday morning.

$60 Million Withdrawn

On Thursday alone, S&L; customers withdrew a total of $60 million in deposits.

Celeste’s bank holiday, which had been set to expire at midnight Sunday, left customers short of cash, and some merchants were reportedly refusing to accept checks written on accounts at the closed S&Ls.;

Before any of the institutions are allowed to reopen, Celeste said, they will be required to apply for federal deposit insurance with the Federal Savings and Loan Insurance Corp., which backs the deposits of federally chartered S&Ls.;

Although they may reopen without actually obtaining federal insurance, they must first meet the FSLIC’s stringent financial standards for acceptance into the insurance fund to prove that they are solvent, a spokesman for Celeste said.

‘Orderly Reopening’ Sought

The legislation to be introduced today will include the new requirement that the thrifts meet federal insurance standards, the spokesman said.

Celeste said his plan should allow for the “orderly reopening” of the thrifts on an individual basis.

“I’m confident that these thrift institutions and Ohio’s financial system will emerge stronger from this,” he said.

Even before Celeste’s announcement, state officials had been working to allay consumer worries about their savings. The state set up a telephone hot line to answer questions from customers of the S&Ls;, and thousands called in.

Other Banks Unaffected

At the same time, the Ohio Council of Retail Merchants, a trade group, was working to persuade store owners to accept checks written on S&L; accounts.

Commercial banks and federally chartered savings and loans in Ohio have been unaffected by the crisis and have remained open, and federal and state officials have been attempting to arrange mergers or takeovers between the hardest hit state S&Ls; and major banks, both from Ohio and out of state.

Meanwhile, in order to make sure depositors do not lose all of their savings, negotiations are under way to find a buyer for Home State, which has been closed since March 9. Celeste said there are two “active bidders” involved in talks about acquiring Home State.

Fed Offered to Help

In an effort to contain the crisis last week, the Federal Reserve Board offered to provide financial help to the troubled state institutions, and said the S&Ls; would be able to borrow from its discount loan window.

Over the weekend, 200 federal auditors pored over the books of the state S&Ls; to determine whether they were solvent enough to reopen today, and Celeste waited for their reports before making his decision Sunday night.

Before flying to Cincinnati to announce that decision, Celeste met with 125 top executives of the state-insured S&Ls; in Columbus, the state capital, and also met with leaders in the state Legislature.

Trading Firm Failed

The crisis was sparked by the collapse of a Florida government securities trading firm, ESM Government Securities Inc., which was closed on March 1 after charges that it had concealed huge losses. Home State, which had done extensive trading in government-backed securities through ESM, was closed and seized by the state after it was disclosed that it might lose as much as $100 million as a result of the Florida firm’s failure.