Savings and Loans: Maryland's Jittery Depositors

One thing smaller financial institutions can do as effectively as the larger ones is create a frightening mess. Community Savings & Loan (assets: $443 million) of Bethesda, Md., demonstrated as much last week by getting into such a pinch for cash that it prompted Governor Harry Hughes to declare a 20- day ban on withdrawals from the thrift's 30,000 accounts. Community's , customers, who were still jittery after a statewide S and L crisis in May, had staged a run on their deposits after hearing about shakiness at the thrift's real estate subsidiary, Equity Programs Investment Corp.

The financial industry was perhaps even more spooked than consumers were. Community's subsidiary is delinquent in payments on $1.4 billion in mortgages and other securities that it sold to about 110 large investors and thrifts. A default on those securities could cause collapses among weaker institutions. It also could bring as much as $300 million in losses for mortgage-insurance companies, like Milwaukee's MGIC Investment, that have issued coverage on the certificates. In the longer term, a default could discourage investors from putting money into mortgages, and possibly drive up the cost of home financing.