A committee of the Maryland House of Delegates approved a measure today that could postpone full reimbursement to depositors of large accounts at Old Court Savings & Loan Association until years after the government's 1990 deadline, while insulating the state from civil lawsuits that disgruntled depositors might file to speed return of their frozen money.
The Economic Matters Committee, in a chaotic session before a standing-room-only crowd of savings and loan depositors, drastically altered a proposal by Del. R. Terry Connelly (D-Baltimore) that would have reduced the state's financial liability in the severe S&L crisis by changing current deposit insurance from a per-account to a per-depositor system.
Under the current system, the state is liable for insurance of up to $100,000 per account.
However, in adopting an amended version of Connelly's controversial bill on a 16-to-7 vote, the House committee left largely intact his original intent: to make it as difficult as possible for an estimated 2,500 holders of multiple Old Court accounts to recover all their money at the expense of small depositors, the state government or Maryland taxpayers.
"We have created two classes of depositors," said Del. Gene W. Counihan (D-Montgomery), who voted against the revised Connelly bill.
Connelly's bill, which mandated maximum $100,000 insurance for individual depositors, regardless of how many accounts they had, sent a shock wave through the legislature when it first surfaced here two weeks ago. The bill's many supporters praised it as a method of reducing the state's financial exposure, but also said it put them in the ticklish position of appearing to renege on the General Assembly's 1985 promise to insure every state-chartered S&L account for $100,000.
The staffs of House Speaker Benjamin L. Cardin (D-Baltimore) and Gov. Harry Hughes, the leading critics of Connelly's first proposal, joined forces this week with leaders of the House committee to construct a compromise that would be palatable to all sides. The revised bill satisfied Cardin and the governor, spokesmen said, because it killed the planned retroactive change in deposit insurance. Connelly was able to claim partial victory because it also postpones full reimbursement to large depositors at least until early 1990 -- and perhaps until years after that.
Under the new measure, the director of the Maryland Deposit Insurance Fund, which controls Old Court and three other distressed thrifts, must initiate "all necessary and appropriate civil actions" to recover money from the directors, employes and attorneys of all failed thrift associations before repaying depositors more than $100,000.
Members of the Economic Matters panel said it could be many years before the last civil suit is filed against Old Court, which effectively would delay repayment to the thrift's largest account holders. For instance, nearly 1,300 of Old Court's 49,801 accounts, representing $155 million of a total $558 million, have $100,000 or more, according to MDIF.
In addition, the revised Connelly bill would set up a legal shield of "sovereign immunity" to protect the state government from depositors' suits. The protection, placed in the legislation at the insistence of Del. Casper R. Taylor Jr., vice chairman of the House committee.
Taylor (D-Allegany) said the amended bill "holds harmless the taxpayers."
"Before we get to the taxpayer [to help with a bailout] we need to make sure all the bad guys are dealt with and sued to get every nickel we can out of them," Taylor added.