Celeste Extends Closing of 70 Ohio S&Ls;, Says Crisis Will Soon Pass

Despite growing signs that Ohio’s bank holiday for its 70 privately insured savings and loan institutions is likely to continue at least until late this week, Ohio Gov. Richard F. Celeste said here Monday that he remains confident that the savings and loan crisis will be resolved quickly.

On Monday morning, Celeste signed an order extending until Wednesday night the bank holiday that he imposed last Friday for Ohio’s non-federally insured thrift institutions after they were hit by a massive run by panicked depositors. He also called the state Legislature into special session to wrestle with emergency legislation designed to allow the S&Ls; to reopen if they apply for federal deposit insurance and show evidence they will qualify.

State May Direct Mergers

Celeste’s proposed legislation would empower the state superintendent of S&Ls; to reopen the institutions and to direct mergers or other financial arrangements for those that are ineligible. The bill would also allow depositors to withdraw up to $750 a month from their accounts, or draw out Social Security checks and payroll checks that have been automatically deposited.

In an afternoon press conference at City Hall here, Celeste refused to predict exactly when the first thrifts could reopen after the bill becomes law. However, he stuck to his earlier prediction, made Sunday night, that it would be a “matter of days rather than weeks” before the first S&Ls; reopen their doors to their customers. He didn’t say whether he might lift the bank holiday order before Wednesday night if some thrifts were ready to reopen.

Later, Celeste’s office said he would meet with Federal Home Loan Bank Board Chairman Edwin Gray and the Ohio congressional delegation in Washington today.

The legislation backed by Celeste, a Democrat, appeared to be bogged down in a political battle in the state Legislature. The Democratic-controlled House of Representatives passed a bipartisan bill in the evening, but a deadlock was developing in the Republican-controlled Senate.

After a lengthy caucus among Senate Republicans on Monday, Senate President Paul Gillmor said some Republican members were skeptical of Celeste’s plan. Some Republican leaders also criticized the Celeste Administration for failing to spot problems with the state’s S&Ls; before last week’s crisis.

Gillmor warned that more negotiations might be needed to move the legislation through the Senate.

Federal Insurance

At the same time, federal officials indicated that it might take several days--or far longer in some cases--for the Ohio S&Ls; to apply and qualify for deposit insurance with the Federal Savings and Loan Insurance Corp., which backs deposits at federally chartered S&Ls.;

“I would doubt any could reopen tomorrow,” said Carolyn Wade, a spokeswoman for the Federal Home Loan Bank of Cincinnati, which is supervising the application process. “When you consider all that is involved in the application process, you can see how it might take longer.”

She added that federal officials have sent out insurance fund application packets to 40 of the S&Ls; and that federal examiners are helping the thrifts to fill out the lengthy forms so that they can be processed quickly.

The application process normally takes several months, but Celeste said federal regulators have agreed to speed up the flow of applications through the regulatory system.

One small S&L; in the Cincinnati area, Columbia Savings & Loan, did reopen Monday after its application for federal insurance, which had been made before the crisis, was approved last week.

Bob Chappell, a spokesman for Charter Oak Savings Assn. of Cincinnati, said Monday that his firm expects to submit its application “within the next 24 to 48 hours” and has had about 20 federal auditors in to inspect its books and help with the application.

“We are still hoping we can open Wednesday or Thursday,” Chappell said.

“I don’t expect another big run when we reopen,” he added. He noted that a number of community leaders have pledged to deposit funds at Charter Oak as soon as the bank holiday ends, in order to increase the public’s confidence in the firm.

Ironically, Ohio’s S&Ls; are seeking deposit insurance from an agency that itself is troubled. The FSLIC is understaffed, underfunded and trying to cope with growing numbers of problem loans at federally insured S&Ls;, according to agency chief Gray. The size of the FSLIC fund--just under $6 billion--has fallen below 1% of total industry deposits, well below the norm.

“We cannot operate a deposit insurance fund without sufficient reserves,” Gray warned in a recent speech to savings executives in Washington. However, FSLIC differs from the private insurance funds because it has the ultimate backing of the U.S. Treasury should it run out of money.

Celeste’s imposition of the bank holiday last Friday was prompted by a panic among customers following 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; that are not covered by federal deposit insurance.

Following Home State’s closing, customers at other S&Ls; began pulling their money out last week. On Thursday alone, customers withdrew a total of $60 million in deposits.

Customers lost confidence because the $130-million, privately financed state insurance fund seemed inadequate to cover their deposits. The run on the thrifts continued even after the state established another $90-million emergency insurance fund to back up the private fund.

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 initiate mergers or takeovers between the hardest-hit state S&Ls; and major banks. Celeste said there are two active bidders interested in buying Home State, which has been closed since March 9.

Ohio’s financial crisis was prompted by the failure of ESM Government Securities Inc., a Fort Lauderdale, Fla., government securities trading firm, which closed March 1. Home State was closed and seized by the state after it became known that it could lose as much as $100 million from ESM’s collapse.

Times staff writer Tom Furlong also contributed to this story.