The Maryland Senate, reacting to recent failures of some financial institutions in other states, gave overwhelming approval tonight to a series of measures that would toughen the state's regulation of more than 100 local savings and loan associations whose deposits are not now protected by federal insurance.
The four bills, one of which would give state officials authority to eject directors of poorly managed savings and loan insitutions, are designed help curb what Montgomery County State Sen. Howard A. Denis has called Maryland's "fool's paradise" of loosely-regulated savings and loans that were rocked by scandal in the 1960s.
A similar package of bills is pending in the House of Delegates.
"We don't want to panic people into thinking their deposits are insecure," said Denis, a Bethesda Republican and chief sponsor of the legislative package. "The S&Ls in this state are strong, but we want them to be as safe as possible."
Maryland is one of five states that maintains a system of private insurance for local savings and loans, some of which have assets worth millions and others that are tiny neighborhood institutions that are open only a couple of hours a week.
A nonprofit corporation called Maryland Savings-Share Insurance Corp. (MSSIC), which is not a state agency, insures 115 savings and loans, which have more than $8 billion in combined assets.
Many consumers make deposits at those institutions believing -- mistakenly -- that their money is insured by the Federal Savings and Loan Insurance Corp., a different agency whose protections for depositors served as a model for the Maryland legislation, Denis said in an interview prior to the Senate vote.
Denis and his allies said another inspiration for the new regulations was the 1983 failure of a state-chartered bank in Nebraska, which was not protected by federal deposit insurance and whose 7,400 depositors lost $67 million.
Denis stressed that in Maryland's robust economy, no S&L in the state seems in danger of going under.
But the rapid influx of money into Maryland savings and loans in recent years, their reliance on out-of-state investments and their increasing involvment in real estate speculation raised questions about the adequacy of state regulations, Denis said.
An added impetus for the bills was the memory of scandals that rocked the state's savings and loan industry more than 20 years ago, when several unregulated S&Ls failed and some bank officers and their allies, including a handful of politicians, went to jail. That scandal, Denis noted tonight, gave birth to MSSIC in 1962.
"Essentially we need to fine-tune the system and give regulators more power," Denis said.
In addition to having the power to remove an S&L officer for persistent unsafe financial practices, the legislation would give officials in the state Division of Licensing and Regulation authority to issue cease and desist orders against poorly run institutions. To date, the regulators' only recourse has been to lift an S&L's charter, a step viewed as so "draconian" it has never been taken, Denis said.
A third bill would enable a potential depositor to obtain an S&L's statement of financial condition; the fourth, which was drafted in part by the Maryland attorney general's office, would in effect insulate state regulations from attack on antitrust grounds.
Denis said the four Senate bills were drafted with the help of Maryland's savings and loan industry. As part of a compromise, Denis said he abandoned for this year his efforts to tighten limits on deposit insurance and give state regulators even more control over certain S&L deposits.