Federal Home Loan Bank Board Chairman Edwin Gray yesterday pledged at a Senate hearing to expedite applications for federal deposit insurance by Maryland savings and loans following a formal appeal for help from Gov. Harry Hughes.
"It appears that private and state insurance funds are on their way out," Senate Banking Committee Chairman Jake Garn (R-Utah) said at the hearing, at which federal and state regulators testified.
Hours later, Hughes announced a limit on withdrawals from accounts at S&Ls insured by the Maryland Savings-Share Insurance Corp., and suggested legislation creating a new insurance fund backed by the state. MSSIC, which insures about 100 thrifts, is not backed by the state.
Gray, who faced reporters for the first time since the Maryland crisis erupted, also supported federal insurance for all depository institutions that meet government standards. He said he told Hughes when he called yesterday that examiners from federal banking agencies had been ready for a week and now will move into the state at once.
"We acted with lightning speed in Ohio, and we will do it again in Maryland," said Gray.
After some initial delay in Ohio, the bank board did act quickly, speeding up the normally lengthy approval process to four or five days. Of the 31 applications processed, 29 were approved, 1 S&L merged, and 1 application was withdrawn. Some of the remaining S&Ls were acquired and others still are closed because they have no insurance following the demise of the Ohio Deposit Guarantee Fund.
Each Maryland applicant -- like each Ohio applicant -- for Federal Savings and Loan Insurance Corp. coverage must have capital equal to at least 5 percent of insured deposits. The S&L also must agree to maintain that level.
The examiners consider whether the institution is expected to remain viable over the next five years, meaning that its capital will not dip below 3 percent of insured deposits. Before granting approval for FSLIC insurance, they also judge whether an institution's assets are sound, whether its management is capable and whether it is primarily engaged in housing-related lending.
Some time ago, the bank board changed its regulations so that existing institutions switching to federal insurance must have capital equal to 5 percent of insured deposits; start-up S&Ls, 7 percent; and those already covered by FSLIC insurance, 3 percent.
At the end of 1984, capital of MSSIC-insured institutions averaged 5.26 percent of insured deposits compared with 4.03 percent for FSLIC-insured institutions. The industry average for federally insured S&Ls has since fallen to 3.88 percent.
It is not known what the current industry average is for MSSIC-insured S&Ls or, more importantly, how many of them can meet the 5 percent requirement. Old Court, for example, had capital equal to about 3 percent of its insured deposits prior to the crisis.
Gray said yesterday that he knows nothing at this point about the condition of MSSIC-insured institutions because the FHLBB does not regulate them. He added that it would be "entirely inappropriate" for him to offer advice to their customers on what to do with their funds.
Gray told reporters that regulators are better prepared to handle the Maryland situation in the wake of the Ohio experience. "We learn every time we encounter a new challenge," he said.
He ducked a question about whether regulators have contingency plans, should similar problems occur in the other states that have privately insured depository institutions. He acknowledged, however, that members of his staff have had informal contacts with officials in Massachusetts and Pennsylvania, two of the three other states with private insurance plans.