Revelations of potentially disastrous financial problems at a subsidiary of Community Savings & Loan in Bethesda evoke a sense of de'ja vu.
At the same time, those revelations indicate an apparent lack of foresight in the thought processes that produced Maryland's dubious plan for a speedy resolution of the savings and loan crisis that erupted in May.
The circumstances may be different, but the lines of concerned depositors at Community's branches this month summon disturbing recollections of the queues that formed in the spring at privately insured Maryland S&Ls.
There is, of course, no evidence to suggest that Community is in the same fix as Old Court Savings & Loan or Merritt Commercial Savings & Loan, where questionable management and investment practices triggered a run by depositors, leading to Maryland's nagging three-month-old savings and loan crisis.
There is, nevertheless, considerable concern about Community's stability in the wake of disclosures last week that its Equity Programs Investment Corp. (EPIC) may be in serious financial difficulty.
The sight of long lines of customers withdrawing their money from Community has to be galling to Maryland officials who obviously believed that, with emergency legislation in place, the state's S&L crisis was practically under control. But the problems at EPIC -- while not an immediate threat to Community, according to the S&L's management -- underscore the fragility of Maryland's solution to its crisis.
EPIC's problems and their impact -- real or imagined -- on Community prove that there still is a crisis of confidence among depositors at state-insured S&Ls. One of the more obvious tasks facing state officials, then, is to prevent this minicrisis from igniting widespread concern about other state-insured S&Ls that haven't yet qualified for federal deposit insurance.
The quickest way to accomplish that is for the highest levels of state government to make a special effort to assure depositors that they are in no danger of losing money in state-insured institutions and that the S&L crisis hasn't worsened.
In the meantime, it appears that a state-imposed deadline for some Maryland-insured S&Ls to obtain federal insurance by the end of the year may be unrealistic. Establishing the deadline without recognizing inherent weaknesses in the old system of private insurance and state regulation has become almost self-defeating.
Maryland's former privately insured S&Ls with assets of more than $40 million have until the end of the year to obtain federal deposit insurance. Smaller institutions have longer to qualify. So far, only 21 of the state's 102 formerly privately insured S&Ls have been approved for coverage by the Federal Savings and Loan Insurance Corp.
Community and several other large state-insured associations are still without federal insurance. The Federal Home Loan Bank Board, which regulates federally insured S&Ls, has told Community to get rid of EPIC if it expects to obtain FSLIC insurance.
The bank board's directive to Community obviously raises legitimate questions about the inability of other large Maryland S&Ls to obtain the FSLIC seal. Until now, it has largely been a question of whether those institutions can meet the net-worth standard set by FSLIC. The bank board's directive to Community puts a different slant on that generality.
Could it be that other S&Ls are being told to dump their risky nonmortgage lending activities before the FSLIC will bless their operations?
The history of privately insured S&Ls shows that states have permitted them far greater power to invest in areas outside traditional home financing. Hence, the risk factor among those institutions was much greater than it was for their federally insured counterparts. Maryland officials must have known that before ordering state-chartered S&Ls to seek federal insurance.
Last May, FHLBB Chairman Edwin Gray left little question about what his agency expects from federally insured S&Ls: to fulfill their obligation to provide economical home financing and to "reduce the exposure of the FSLIC fund to the risks posed by excessive levels of direct investments."
Regulators in the state were burned by ignorance or laissez faire, or both, as the larger crisis has shown. State officials must have known, therefore, that the bank board and the FSLIC would demand stricter adherence to investment standards. Gray's testimony before the House Banking Committee in May was an unmistakable warning that institutions not already covered by FSLIC would have to meet the stricter standards to qualify for insurance.
A carefully directed phase-out of questionable investments by Maryland S&Ls, then, may be of greater benefit to the state than the cold-turkey remedy that has been prescribed to obtain federal insurance.