Maryland Gov. Harry R. Hughes, seeking to calm depositors in the 102 state-chartered savings and loan associations, expressed confidence Wednesday that two or three of the larger institutions would qualify for federal deposit insurance by the end of the week.
“We want the associations to apply for federal insurance as soon as possible,” Hughes said at a news conference.
The governor also disclosed that representatives of Citicorp and Chase Manhattan Bank, the largest and third-largest commercial banks in the nation, respectively, had expressed an interest in acquiring Old Court Savings & Loan of Baltimore and Merritt Commercial Savings & Loan. The two problem thrifts have been placed under conservatorship by the private Maryland Savings Share Insurance Corp.
To avert a panicky drain of funds by depositors, Hughes on Tuesday imposed a limit of $1,000 a month on withdrawals from accounts at the 102 privately insured savings associations.
Hughes said Wednesday that he had received assurances from federal officials that examinations will be conducted speedily to see which Maryland institutions can qualify for federal insurance, which guarantees deposits up to $100,000.
“We need to emphasize the need to get that coverage,” he said.
The disclosure of management problems at Old Court late last week provoked a run on that association and others in the state, producing a full-fledged crisis in which the affected thrifts suffered deposit losses of more than $116 million. Hughes has summoned an emergency session of the state Legislature to enact a new insurance system.
The panic engulfing Maryland’s state-chartered savings and loan associations is the unhappy aftermath of an earlier crisis in Ohio, an event that drew worldwide publicity and put depositors on edge.
“Absent the Ohio situation, we would not be here this evening,” Charles C. Hogg II, president of the private Maryland firm that insures deposits at state institutions, complained when the crisis erupted last Thursday. “We are all highly sensitized because of recent events in Ohio.”
Hughes said Wednesday that a total of $630 million--nearly a tenth of all deposits in the privately insured thrifts--had been withdrawn since a much more serious crisis closed savings and loan associations in Ohio in March.
The Ohio situation was an immediate menace: A major thrift institution failed because it made a bad investment with a Florida securities firm that collapsed. Depositor nervousness prompted Gov. Richard F. Celeste to shut all of the state institutions covered by a private insurance fund.
In contrast to Ohio, there has been no thrift institution failure in Maryland. In fact, all that happened in the current crisis was the installation of a new managing officer to prevent failure at Old Court S&L.; But the announcement of the new management, and an accompanying investigation of the old regime at the savings association, was enough to stimulate long lines of anxious people seeking their money.
“I’ve been watching Old Court since the Ohio situation,” said a man in line during the first day of the mass withdrawals at an Old Court branch in Baltimore. “I had no hesitation about taking my money out.”
“There was enormous press coverage in Ohio,” noted Mark F. Clark, senior vice president of public affairs at the U.S. League of Savings Institutions, a major industry trade group. Suddenly, everyone with an account at a privately insured association was on alert for possible problems, he said. “If anyone had second thoughts about their savings institutions, Ohio reinforced them.”
Financial analysts tended to agree. “This crisis wouldn’t have happened if there hadn’t been Ohio first,” said Robert E. Litan, a specialist in banking with the Brookings Institution in Washington. “What this really indicates is the death rattle of private insurance systems.