Maryland: Another Time Bomb Goes Off

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When a savings and loan crisis hit Maryland last week, depositors knew all too well what to do. They gathered up their lawn chairs, thermos bottles and portable radios and lined up outside the banks as if they were embarking on a familiar American outing. In a sense, they were. Only two months ago, depositors across the U.S. witnessed scenes right out of the Great Depression during a panic that temporarily shut down Ohio's 69 privately insured thrifts. At the time, Governor Richard Celeste warned several other states that they should prepare for similar events. "You're sitting on a time bomb," he told Maryland Governor Harry Hughes.

The panic indeed exploded in Maryland last week, prompting Hughes to seize emergency control of his state's 102 privately insured thrifts. The events demonstrated the shaky state of consumer confidence in banking and sparked demands that all deposit-taking institutions be federally insured. Most of all, Maryland's crisis raised doubts about the overall health of the savings and loan industry, which is attempting to recover from a six-year slump. Said Willard Butcher, chairman of Chase Manhattan Bank: "We have the potential for a very serious thrift crisis in this country."

A whiff of trouble was all it took to ignite the fears of Maryland's depositors. Press reports about management improprieties at Baltimore's Old Court Savings & Loan sent customers scurrying to withdraw deposits. The panic spread to other thrifts because many of the state's institutions, as those in Ohio once did, rely for deposit protection on a private insurance fund rather than federal agencies. Maryland depositors feared that their $286 million fund, the Maryland Savings-Share Insurance Corp., would be exhausted by a major run on the $7.2 billion in deposits that it guarantees.

Even though Maryland's government has no obligation to support the private insurance fund, many customers might have got a false sense of security from the thrifts' prominently displayed decal symbol, which was designed to look very much like the official state seal. "The thing that's scaring me is that everyone else is scared," said Jeff Shank, an auto mechanic who took a four-hour lunch break to withdraw $14,000 in savings from an Old Court branch.

By week's end Hughes managed to restore calm and slow down the cash drain by ordering the 102 thrifts to limit withdrawals to no more than $1,000 a month. Federal regulators moved quickly to help. The Federal Savings and Loan Insurance Corporation, a U.S. agency that guarantees deposits up to $100,000, sent an army of auditors to Maryland to rush the process of bringing many of the thrifts under its coverage.