Maryland Gov. Harry Hughes told leaders of the General Assembly today that several of the state's largest savings and loan associations cannot presently meet requirements for federal insurance and may ultimately have to be merged with other thrifts, sold or liquidated.
Hughes' statements to legislators this afternoon during an hour-long meeting in his office constitute the clearest acknowledgement to date by his administration that the state faces a protracted thrift industry crisis that extends beyond the two troubled Baltimore associations currently under state conservatorship.
During its emergency session in May that followed depositor runs on the Old Court and Merritt Commercial savings and loan associations, the legislature enacted laws requiring the 26 state thrifts with assets of more than $40 million each to obtain insurance from the Federal Savings and Loan Insurance Corp. by January. So far, 10 thrifts have won FSLIC insurance.
Although Hughes told legislators it is still possible that all of the others except Merritt and Old Court can eventually obtain federal insurance, he indicated that several would have to take "dramatic measures" to qualify, according to one participant at today's meeting. The governor did not name the institutions that are expected to have difficulty qualifying for FSLIC insurance.
Although the main hurdle facing the thrifts is meeting FSLIC's requirement that they have accessible funds equal to 5 percent of their assets, others may have to make changes in management, Hughes told the legislative leaders.
"In one or two cases [FSLIC examiners] have pinpointed certain individuals whose departure might improve or strengthen the management situation," said one participant in today's meeting who asked not to be identified.
Hughes also indicated to the legislators that the administration is studying whether to further restrict interest payments at Old Court and Merritt.
A Baltimore Circuit Court judge overseeing their conservatorship has already reduced interest on passbook accounts and certificates of deposit that have matured to 5 percent.
The state's conservator is now considering the feasibility of reducing the interest rates on long-term certificates that are still earning high returns and continuing to increase the thrifts' liabilities.
The governor also said he has no plans to call the assembly back into session to enact legislation to allow out-of-state banks to acquire Maryland thrifts and convert them to full-service commercial banks.
The only circumstance under which he would convene the legislature for that purpose, said Hughes, is if a bank made a firm offer to relieve the state of a major share of the potential liability it faces in protecting all deposits up to $100,000 per account. That offer would almost certainly have to include a takeover of Merritt or Old Court and perhaps other thrifts that may not qualify for FSLIC insurance.
Administration officials are continuing to negotiate with out-of-state banks, including Chase Manhattan and Citicorp, but no deal is imminent, according to Thomas Maddux, secretary of economic and community development.
In a related development, House Speaker Benjamin L. Cardin (D-Baltimore) instructed one of his committees today to begin reviewing legislation banning insider loans by thrifts to their officers and owners; currently, insider loans are permitted only under special circumstances. That bill and others giving the state additional authority to regulate the financial practices of its S&Ls are to be presented to the 1986 assembly in January.