Rhode Island Officials Seek U.S. Bailout : Finance: Legislators back a plan that would make a $500-million pool of federal money available for low-interest loans.

Rhode Island’s governor and senators pleaded Tuesday for a federal bailout of the state’s private deposit insurance system, saying the state has been plunged into a financial crisis worse than it suffered during the Great Depression.

Gov. Bruce Sundlun, a Democrat, shut down 35 credit unions and 10 banks on New Year’s Day after the Rhode Island Share and Deposit Indemnity Corp. collapsed.

Twenty-seven of the institutions have since reopened with federal insurance, but 12 remain closed and their depositors’ accounts frozen. The rest either have closed or paid off depositors and converted to loan-origination offices.

“People have lost money set aside for weddings, had burial accounts frozen, lost homes and businesses,” Sundlun told the Senate Banking Committee.

“Every day, heartbreaking appeals come to my office,” he said. “Terminal cancer patients whose last days are burdened by worry, frantic parents seeking funds to fly to critically injured children across the country, desperate victims of home and business foreclosure. From my office, it is not a pretty sight.”

More than half the state’s 1 million people have been affected, Sundlun said.

“Not even in the Great Depression has any state been so impacted by the failure of a financial institution,” he added.

Sundlun is backing legislation, sponsored by Sen. John Chafee (R-R.I.), that would make a $500-million pool of federal money available for low-interest loans to states whose private deposit insurance systems collapse. No more than $150 million could be loaned to any one state, and repayment would be required in 10 years.

Chafee acknowledged that the plan was--in the words of Sen. Christopher S. Bond (R-Mo.)--”a little bit of a bailout.”

But, he said, “without some type of federal assistance, Rhode Island is in danger of becoming an economic catastrophe.”

He said that although it would help Rhode Island, it would not be special-interest legislation because “it could prove valuable to . . . 20 states in which non-federally insured (credit unions are) allowed to operate.”