Rhode Island Unveils Depositor Aid Plan : Banking: Customers of 16 closed banks and credit unions that were unable to obtain federal deposit insurance will receive part of their money.

Gov. Bruce G.Sundlun Sunday announced a plan to return frozen assets to depositors at 16 closed banks and credit unions that failed to qualify for federal deposit insurance.

The move came after the governor spent much of the weekend appearing on interview shows to try to persuade depositors at another 22 closed credit unions not to pull their money when the institutions reopen today. The 22 were able to qualify for federal deposit insurance.

Sundlun ordered 45 banks and credit unions closed New Year’s Day after their private insurer, the Rhode Island Share and Deposit Indemnity Corp., collapsed. Twenty-two have now qualified for federal deposit insurance, 16 failed to qualify and the status of seven is still being determined.

Depositors at the 16 banks and credit unions that failed to qualify for federal deposit insurance will be able to get half their savings accounts--up to $2,500--and a maximum of $10,000 from their checking accounts as early as Jan. 21, Sundlun said.

The 45 institutions consist of 300,000 accounts with assets totalling $1.7 billion. The lion’s share--about $1.4 billion--is in the 16 institutions that did not qualify for federal insurance because of their weak financial condition.

Sundlun’s plan will be accomplished by creating a state agency called the Depositors Economic Protection Corporation.

DEPCO will have the authority to take over assets of the 16 institutions, probably through court-approved receivership, Sundlun said. It will be up to the institutions whether they choose to be part of the plan.

DEPCO will borrow $150 million from sound banks in the state and use the money to return some of each depositor’s savings.

The sound banks will examine the portfolios of the shaky institutions and decide what assets they want and at what price. Sale of the assets is expected to allow DEPCO to pay off the $150-million loan. The agency will then try to sell off what is left of the weak institutions.

Revenues from the sales will be given to depositors. They are not expected to cover all the money owed. The shortfall will be made up by the state over the next few years and by performing assets of DEPCO.

Sundlun said the same plan was used during banking holidays in other states and a similar holiday declared by President Franklin D. Roosevelt in 1933.

The plan will enable about three-quarters of depositors to recover most, if not all, of their deposits, he said.

Earlier, Sundlun took to the airwaves to reassure depositors at the 22 newly insured institutions that are reopening today.

The institutions are safe, he said. “When these credit unions open, the best thing (depositors) can do is leave their money in the institution,” he said.

But if the experience of the weekend is any indication, Sundlun’s message may go unheeded.

Saturday was the first day that depositors at the 22 institutions could get Social Security and other federal payments that normally are deposited directly into their still-frozen credit union and bank accounts.

When the 45 institutions covered by Rhode Island Share and Deposit Indemnity Corp. were closed, direct deposits were frozen. So the U.S. Treasury Department set up a special account with federally insured Citizens Bank to distribute new checks.

Beneficiaries of the checks waited in line for two hours or more at Citizens’ 52 branches statewide Saturday to obtain their money.