Several months ago, as the problems of a savings and loan association in the state became acute, the Maryland Savings-Share Insurance Corp. quietly activated a $100 million reserve fund.
Officials of MSSIC say they never actually used the bailout find. But as they recall now, those were tense days for the corporation as the liquidity of a major S&L in the state was in question.
As the S&L business experiences difficult times during the current economic slowdown, MSSIC officials have carefully adjusted their portfolio so that the corporation is more liquid, moving major pieces of its reserves of nearly $45-million into short-term funds.
That change is designed to insure the availability of funds in hard times. In fact, MSSIC's portfolio had an average maturity of 12 years in 1970, although that figure has now dropped to 1.9 years. "We're about as short as can be," says one official. "We need the potential of liquidity."
Although the reserve fund was not used and officials now say that particular S&L appears to be on the road to recovery, the pressures on MSSIC, a corporation set up in 1962 to guarantee the now-132 state-chartered savings and loan associations, appear to be substantial.
But with the recent addition of a sophisticated computerized watchdog system, officials of the corporation say MSSIC has weathered the difficult times of recent months, and its member institutions are adjusting to the strains of running S&Ls in the current tight money situation.
"I think the key point is that we were ready and we have weathered the storm in great shape," says Dennis Berlin, chairman of MSSIC and executive vice president of Chevy Chase Savings & Loan Inc., which is easily the largest MSSIC S&L with assets as of Dec. 31 of more than $405 million.
MSSIC officials say that depositers receive the same level of protection as they would if they saved at federally chartered S&Ls and at the same time benefit from the rate flexibility the state chartering permits. They vehemently deny criticism from some officials and S&L observers who worry that MSSIC may not be strong enough to weather serious problems.
MSSIC was formed by the state legislature 18 years ago at a time when the industry in Maryland and in several states around the country had faced problems and several failures. It insures the S&Ls, which are regulated by the state Division of Building, Savings and Loan Associations. The Federal Savings and Loan Insurance Corporation has access to federal funds, but MSSIC is not now permitted to borrow from the state.
Most of MSSIC institutions are relatively small. More than half had total assets of less than $3 million, which is less than 1 percent of what a Chevy Chase has, for example. In fact, about 100 of the state-chartered S&Ls were not eligible for federal chartering because of federal rules.
The state-chartered S&Ls stay in MSSIC, contributing about 2 percent of their assets to MSSIC's funds, essentially for two reasons -- rate flexibility and the relative lack of red tape. "We don't have a 750-page rule book that tells you how to sneeze everyday," Berlin said. "We allow for rate flexibility and then encourage the entrepreneurial pride of being outside the federal system."
That rate freedom has permitted many of these state-chartered S&Ls to raise their passbook rates to 7 percent and recapture at least some of the savings dollars that have in large numbers jumped to money market funds.
That loss of funds is part of the pressure that propelled Baltimore's Security Savings and Loan into financial difficulty earlier this year. Only a MSSIC-endorsed takeover of Security by Sharon Savings and Loan in March averted severe financial problems. A similar MSSIC-endorsed takeover of suburban Washington's Friendship Savings and Loan by a group of local businessman was also worked out in March.
Berlin, a lawyer, former S&L examiner and state regulator, wears two hats because of his MSSIC and Chevy Chase roles. "We don't see any problem institutions at the present time," he said, while noting that "the weaknesses in the business are going to continue for several quarters."