Maryland Acts to Stem S&L; Crisis : Bills OKd Making Federal Deposit Insurance Mandatory

In an emergency session, the Maryland General Assembly voted early today to require all state-chartered savings and loan associations to seek the protection of federal deposit insurance.

The legislators approved a package of bills designed to calm the fears of anxious Maryland savers who began pulling their deposits out of the privately insured associations last week.

The legislation ordered 102 state-chartered institutions to seek federal deposit insurance by June 1 or face a state takeover. A $100-million state bond issue was approved to provide temporary financial help for associations that could not immediately meet the strict federal requirements for insurance coverage.

“We meet in an hour of crisis,” Maryland Gov. Harry R. Hughes said as the Legislature began meeting.

Hughes and legislative leaders were convinced that only federal insurance--which guarantees deposits up to $100,000--could stem the run on the associations that began last week. Already, two associations--Old Court Savings & Loan and Merritt Commercial Savings & Loan--have been placed under state conservatorship.

“We have seen the problem--the withdrawal of deposits--crawl, then walk, then run,” Hughes said. “We reached a point when everyone realized a run was inevitable and the risk of action must be taken,” he told a joint meeting of the Senate and the House of Delegates.

To stem the drain of savings, Hughes on Tuesday imposed a limit of $1,000 on withdrawals from accounts at all the state-chartered associations.

Individual associations will be free to return to normal business only after they qualify for federal insurance.

Traces History of Crisis

In his address, the governor traced the history of the crisis through a series of problems that have beset the financial communities of other states.

“The conditions leading to this crisis have been many and varied,” he said. “In Chicago, a big bank falls and public confidence is shaken. In New Jersey, a brokerage house fails. In Ohio, a savings and loan association collapses and brings down with it the private insurance system which was designed to save it and dozens of others lacking federal insurance. And public confidence drops a bit more.

“In Maryland, reports of management problems in a major savings and loan begin to spread and our people wonder, ‘Can it happen here?’ ”

Hughes said that “the ultimate goal” of his program “is to make certain that all Maryland associations--big and small--obtain federal insurance” and emphasized that his plan aims to “protect the depositors--not the owners, not the investors.”

Under the new regulations, all savings associations with assets of more than $25 million will be required to apply immediately for federal insurance.

With $80 million authorized in the projected bond issue, the state will give certificates to associations to increase their net worth enough to meet federal insurance standards. If the associations fail to get enough money to meet the federal requirements, the state will take control of them.

Associations with assets under $25 million will come under the protection of a new state insurance agency. It will be formed with the remaining $20 million from the $100-million bond issue.

The new insurance fund will replace the private agency--the Maryland Savings Share Insurance Corp.--which is supposed to protect deposits but now obviously lacks the confidence of Maryland savings customers.

The 102 state-chartered associations have about $9.2 billion in assets. Chevy Chase Savings & Loan, the largest with $1.7 billion in assets, applied long before the current crisis to come under the federal insurance umbrella. Its application has been provisionally approved.

Officials here are hoping to find an out-of-state buyer for Old Court Savings, the association at which the deposit crisis began when the state forced a change in top management. Old Court is the second-largest state-chartered association with assets of $882 million.