The Maryland Senate's approval this week of measures to strengthen the regulatory machinery controlling state-chartered savings and loan associations is the legislative equivalent of half a loaf.
Half a loaf in this case, however, is probably better than nothing, given the potential for foul-ups, fraud and foolhardy decisions in that segment of the industry coming under state control.
The trick now is to make the other half of the loaf more palatable to those holding out against further measures to tighten the regulatory reins. It's doubtful whether that trick can be pulled off in this session of the General Assembly, however.
As expected, the Senate has approved four measures that were outlined here several months ago. One bill would give state regulatory officials authority to get rid of officers and directors of poorly managed S&Ls. A second bill would empower state officials to issue cease-and-desist orders in cases where poor management practices threaten the viability of an institution. A third would give a potential depositor the right to see an S&L's statement of condition. Currently, only depositors -- technically members of nonstock S&Ls -- have access to that information.
The thrust of the fourth bill has less to do with supervisory powers than with strengthening the state's hand against possible challenges to the regulations.
It's fair to say that the proposed remedies would add considerable strength to the regulatory powers already in existence. But passage of those measures alone is no guarantee that Marylanders will avoid the "fool's paradise" that State Sen. Howard A. Denis (R-Montgomery) warned of last year.
Denis, a principal sponsor of the new regulations, settled for half a loaf this time, conceding he had little chance of winning support for stricter limits on deposit insurance. Next year, perhaps, Dennis will find stouter hearts and legislators with fewer blinders in the General Assembly.
Dennis had considered offering a proposal that would have fixed the maximum insurance at $300,000 for each depositor, instead of the current limit of $100,000 for each account. But that proposal died aborning for lack of support.
The Maryland Savings Share Insurance Corp. (MSSIC), a nonprofit corporation, was established by the legislature in 1962 to provide insurance for deposits at state-chartered institutions that do not offer insurance coverage by the Federal Savings and Loan Insurance Corp. It's possible for a single depositor to have unlimited accounts insured by MSSIC, up to $100,000 each, in the same institution.
The MSSIC fund, to which member S&Ls contribute, is not backed by the state. The absence of a state guarantee and the unlimited insurance coverage of savings accounts have been major concerns for some time among many consumers and even some legislators. If the scores of complaints received by The Post are any indication, there is growing support for a change that would require regulators to issue public reports on the financial condition of state-chartered S&Ls. Financial-condition statements of federally insured S&Ls are made public by U.S. regulators semi-annually.
Interestingly, while Maryland officials are taking a piecemeal approach to tightening regulations for state-chartered S&Ls, the Federal Home Loan Bank Board, which regulates federally chartered institutions, disclosed this week that up to 10 percent of the nation's savings and loans are in "severe trouble." Bad loans and investments are said to be primarily responsible for the problems and are considered serious threats to the federal insurance fund.
Even though state officials maintain that the industry is strong in Maryland, its relative strength doesn't rule out the development of problems that could threaten the MSSIC fund in the absence of stiffer regulations and public disclosure.
U.S. Rep. Doug Barnard Jr. (D-Ga.), who is chairman of the House subcommittee on commerce, consumer and monetary affairs, volunteered a sobering thought the other day in the wake of disclosures by regulators about the troubles some federal S&Ls are experiencing. State-chartered S&Ls obviously don't operate in quite the same fashion as their federal counterparts, but Barnard's views seem apropos in either case.
"Our nation's financial institutions have entered a deregulated environment with substantially increased opportunities but with comparable risks as well," Barnard said. "Accordingly, some fundamental reappraisals of the way the financial institutions do business, the manner of their supervision, and the basis on which deposits are insured are urgently in order."
More bread, please.