The Maryland General Assembly, in an extraordinary special session that ended Tuesday, gave Gov. Harry Hughes broad authority to deal with the savings and loan crisis that erupted earlier in the month. On the surface, at least, it appears that the governor and legislators have restored confidence in the state's S&Ls.
The speed with which lawmakers handled an extremely complex issue in such a brief session can be misleading, however. It can, in fact, result in further complacency where the industry and other financial institutions are concerned.
If anything, the general assembly's speedy enactment of a raft of bills during the special session did more to restore confidence in the state's ability to respond quickly to a crisis than it did in the S&L industry's ability to recover from a near disaster.
Hughes' imposition of a $1,000-a-month deposit withdrawal limit quieted the panic that erupted in the wake of disclosures of problems at Baltimore's Old Court Savings and Loan. But it seems unlikely that that stern measure will restore the level of confidence that most non-federally insured S&Ls enjoyed before the crisis. The truth is, depositors have little choice but to abide by the withdrawal restriction until their S&L either has been approved for federal deposit insurance, found to be relatively sound, or exempted from the requirement to obtain federal insurance.
Little more than half of the former privately insured Maryland S&Ls have had the withdrawal restriction lifted for one reason or another, but it's unlikely that a vast majority will soon qualify for federal desposit insurance. Therefore, the viability of S&Ls that now are insured by the state will depend largely on the extent of the public's confidence, until those institutions can qualify for federal insurance, be merged, acquired or liquidated. The first test of that confidence will be seen once people are given unlimited access to their savings accounts.
In the meantime, lawmakers appeared to have learned little from the past by their haste to adjourn the special session. To be sure, they responded quickly to the immediate crisis by enacting a series of bills designed to restore confidence in a badly battered industry and to safeguard against the loss of depositors' funds. And, although legislators allowed purely political considerations to color their thinking at times, they capped the special session by authorizing two investigations to determine how the crisis developed and who was responsible.
Events of the past several weeks indicate, nevertheless, that the general assembly closed the book on a lot of unfinished business that requires immediate attention.
House Speaker Benjamin Cardin's comment to The Baltimore Sun at the conclusion of the special session is revealing. "There's still a very serious situation in the state, and I don't want to sound like it's otherwise," said Cardin. But, he added, "I think we have done all that we can."
Time and events will be the judge of that.
In the meantime, Montgomery County Sen. Stewart Bainum Jr. (D) believes strongly that the governor and the general assembly can do more. In fact, Bainum thinks the general assembly should have spent at least a full week sorting out the complexities of the S&L crisis and planning for the future in a more comprehensive manner.
"This state government, by its nature, is reactive instead of proactive, and we need a mechanism that will enable us to be proactive," said Bainum. "This crisis articulated the need for a mechanism to be proactive."
The question state officials face, Bainum said in letters to Hughes and the Board of Public Works this week, is: "What is the The first test of that public confidence will be seen once people are given unlimited access to their savings accounts. most efficient way for the state to comprehensively manage this crisis on a long-term basis and ensure that depositors not lose a cent?"
For one thing, Bainum recommends that Maryland obtain expert legal and thrift industry counsel. He also recommends appointment of a blue-ribbon gubernatorial task force to study the entire banking and thrift industry in Maryland. Although the task force would place particular emphasis on the S&L crisis, its work would extend to all areas of relevant concern, such as credit unions and mutual savings banks. The panel also should be charged with making legislative recommendations to prevent similar crises from occurring in other thrift-related institutions regulated by the state, Bainum suggests.
Among his other recommendations, Bainum cited the need for a state financial adviser -- a must, he maintains, "to minimize the damage that might be done by the S&L crisis to our credit rating."
Finally, the state should be "the financier of last resort; not the financier of first resort," Bainum said, referring to the general assembly's authorization of $100 million in new debt to help S&Ls qualify for federal insurance. That money should be used only after all other capital-raising avenues,including the sale of stock, are exhausted, Bainum believes. Thus, he has recommended an acceleration of interstate banking privileges for would-be buyers of Maryland S&Ls as a principal means of limiting taxpayer exposure.
Bainum hasn't had any official reaction to his recommendations, but they appear to offer a base for a sound formula for building confidence and managing a long-term crisis in the state's thrift industry.