‘Thrift’ Failure Brings Closings in Australia : Finance: The country’s biggest state struggles to avert a savings and loan crisis. Small depositors are protected.

A run on deposits has forced a state government to close a group of lending institutions to prevent a chain reaction like the one that hit their American equivalent, the savings and loan industry.

Victoria state also pledged that all of the small uninsured depositors at the failed Farrow Corp., the southeastern state’s largest such institution, would get all their money back.

Some 220,000 Australians had faced the loss of their life savings in the failure of Farrow. The corporation is composed of three so-called building societies that, like American S&Ls;, were primarily established to make home loans.

The decision to refund the depositors could cost the financially troubled state up to $800 million (U.S.), though the final toll will be determined after the assets of Farrow are sold off. Banks that loaned the company money will get first shot at those funds.

Analysts say Farrow’s granting of risky loans caused the firm to go under, a practice also blamed for the American S&L; crisis, which could cost American taxpayers hundreds of billions of dollars.

Some critics have called for Victoria Premier John Cain to resign over the financial crisis, which conceivably could lead to the fall of the state government. Victoria, Australia’s second-most populous state, with 4.1 million people, includes the coastal city of Melbourne.

There also could be repercussions on the federal level, where the Labor government of Prime Minister Bob Hawke scored a narrow victory earlier this year after the loss of nine Parliament seats.