Every week for the past five years, Mildred Crowell has walked to the Georgetown branch of the National Bank of Washington. Most weeks, she makes a small deposit. But on Thursday, the 78-year-old Crowell made a withdrawal: her entire life's savings.
As she waited patiently for her cashier's check, Crowell asked the teller to explain what had happened to her bank, the oldest bank in Washington, to cause it to fail. The teller stared back, her expression blank.
Confused, Crowell left the bank, check in hand. She said she didn't know where to deposit it.
While the safety of the banking system and the savings and loan crisis have been explosive political issues in the nation's capital for months, until last week, the reality of those debates had never hit inside the Capital Beltway.
But in a week that will likely be forever remembered in this city's history, Washingtonians received a bitter double dose of the bank and thrift failures they had so often heard about.
On Wednesday, federal regulators seized control of the National Bank of Washington (NBW), marking the first time since the Depression that a major District-based bank has failed. The collapse of NBW came just one day after an old-fashioned depositor run on United Savings Bank forced federal regulators to seize control of the Vienna thrift.
Like Crowell, many area residents found themselves stunned and bewildered by last week's unprecedented events -- events that capped months of bad news about area banks and savings and loans and raised new questions about their financial health.
"I just don't know what to think anymore," Crowell said, staring at her NBW checkbook. "I mean, I know we're insured and all that, but I still got a pit in the bottom of my stomach."
Robert Pincus, head of the Washington Area Bankers Association, said he's convinced that depositor confidence in area financial institutions is waning. "Confidence today is eroding because of uncertainty," he said. "Nobody knows what to think. This has never happened before."
United Savings was the first local S&L failure since the Maryland thrift crisis of 1985. Some area residents said last week that they could not help but be reminded of the failure of Old Court Savings and Loan of Baltimore that year. Some depositors at Old Court lost the use of their money for four years, after thousands of depositors panicked and the state government stepped in to freeze all accounts.
Despite all of the federal government's assurances last week that accounts at United would not be frozen, hundreds of depositors stood in line for hours to withdraw their money. After a run on the thrift that lasted three days and drained millions from United's vault, federal regulators stepped in to calm depositors' fears.
The end for NBW was not nearly as dramatic. Many depositors said they would leave their money in the bank because of the $100,000 federal insurance. However, in the months before last week's federal takeover, depositors already had withdrawn more than $450 million.
Pincus, along with other Washington area business executives, said the failure of the two institutions in just two days was no more than coincidence -- one that is not likely to be repeated. NBW's troubled history -- decades of controversy and scandal that have kept the bank adrift -- made last week's takeover inevitable, the executives said.
Similarly, United's final chapter follows years of bad management decisions stemming from United executives' desire to make it one of Northern Virginia's biggest operations. To attain that goal, United made millions of dollars worth of risky loans and investments that brought criticism from regulators as early as 1988.
"I wouldn't draw any startling conclusions from this," said William Isaac, former chairman of the Federal Deposit Insurance Corp. and now a Washington-based industry consultant. "Initially, the community is always shocked. They ask, 'How could this happen to us in our market?' But then the federal government steps in, and people realize that their money is protected, and the panic goes away."
But even if the panic disappears, some nagging questions remain about the deteriorating health of the local economy and its continued affect on Washington area banks and thrifts.
Over the past six months, nearly every major financial institution in the region has reported a loss or a downturn in profits: Riggs National Corp., James Madison Ltd., Signet Banking Corp., Sovran Financial Corp., Crestar Financial Corp., Dominion Bankshares Corp., Ameribanc Investors Group ... and the list goes on.
The largest thrift in the area, Perpetual Savings Bank, and the largest bank holding company, MNC Financial Inc., have been hit the hardest, recording a $50.2 million loss and a $75 million loss, respectively, for the second quarter of 1990. (MNC is the parent of American Security Banks and Maryland National Bank.)
Not since the 1970s, when thrifts were pounded by high interest rates and banks were suffering from a decline in the real estate market, has the area experienced such turmoil.
Bank and thrift experts said last week it's clear that the Washington area economy is suffering from the burst of the ballooning local real estate market. And for all their history, both NBW and United in the end were pushed over the brink by the sluggish real estate market.
Asked last week about the health of commercial banks in the area, Kevin Blakely, a spokesman for the Office of the Comptroller of the Currency, said, "The vast majority of institutions will be able to survive."
However, the outlook for S&Ls is not nearly as strong. The federal government already has predicted that 15 more area S&Ls will fail in the next year -- seven in Maryland, seven in Virginia and one in the District. Although the government has declined to identify those institutions, analysts say that any thrift lacking cash reserves is in jeopardy.
Ed Mathias, a senior official with T. Rowe Price in Baltimore, said the problems at local banks and S&Ls "reflect trouble with the forces that have been the underpinning of the D.C. economy, especially real estate. It's not a situation that will heal itself quickly," he said.
Mathias said he believes the old adage that Washington has a "recession-proof" economy no longer holds true. "It's a very, very strong local economy," he said. "But to believe that we're not going to feel this downturn is not a reasonable hypothesis."
Mathias and others said the problems at area financial institutions will have a ripple effect that will hit individuals and businesses alike. Banks already have reined in their lending, refusing even to lend to some of their best customers.
Bonnie Wachtel, of the Wachtel & Co. brokerage in Washington, said she's already seeing the spillover effect. One of her clients has been trying for several months to renegotiate a $6 million line of credit with NBW. "The bank couldn't even focus on the request because of its own internal problems," Wachtel said. And last week, with the failure of the institution and the government's announcement that it would be sold, Wachtel's client lost all hope.
One banker, who asked not to be identified, said there will be few institutions around willing to pick up the slack. "Bankers are saying, 'quality, quality, quality.' To the lender out there on the line, that means don't make a loan," he said. "The credit crunch here is escalating. There's no marketplace left out there."
Pincus, who warned in March that a contraction of credit would spin the area's economy into recession, reiterated his warning last week. "Somebody better wake up and do something," he said. "Bankers are walking around with their heads down."