Mr. President, Mr. Speaker, Members of the General Assembly:
We meet in an hour of crisis. We meet, also in a moment of opportunity to deal with that crisis during its early, manageable phase.
The conditions leading to this crisis have been many and varied.
In Chicago, a big bank falls, and public confidence is shaken. In New Jersey a brokerage house fails. In Ohio, a savings and loan association collapses and brings down with it the private insurance system which was designed to save it and dozens of others lacking federal insurance. And public confidence drops a bit more.
In Maryland, reports of management problems in a major savings and loan house begin to spread, and our people wonder: Can it happen here?
The wonder develops into worry, and then worry becomes fear.
Then come the reflections of crisis -- the lines, the anxious telephone calls, the waves of cash flowing out of institutions that are covered by the private, nonprofit, Maryland Savings Share Insurance Corporation (MSSIC) instead of by the Federal Savings and Loan Insurance Corporation (FSLIC).
With the bulk of their assets tied up in outstanding loans, many of the larger MSSIC associations have worked desperately to convert these assets into cash by borrowing. An indication of the severe cash crunch is told in figures from the Federal Reserve Bank of Richmond. On May 8, the total of loans made by the Federal Reserve Bank to the 20 MSSIC associations was $119 million. One week later on May 15, that total had nearly tripled to more than $413 million. Cash Outflow Rises
Meanwhile, the daily cash outflow from these top 20 MSSIC associations rose from a net $5 million on May 8 to more than $200 million on May 15, one week later.
The past three weeks have been the most troubling and perplexing during my over six years as Governor. We have faced many problems and crises but none like this. Monitoring the situation daily and making decisions carefully have dominated the efforts of many -- my staff, the Attorney General and his staff, the Federal Reserve representatives (who have been absolutely magnificent), your presiding officers and many other State employees and good citizens from the private sector.
We have seen the problem -- the withdrawal of deposits -- crawl, then walk, then run. We have faced the dilemma of whether to do nothing or do something and run the risk of triggering a run. We reached the point when everyone realized a run was inevitable and the risk of action must be taken. We changed management of Old Court. The run continued to accelerate. We put Old Court in conservatorship at two o'clock in the morning in the kitchen of a Circuit Court Judge. The run continued. Merritt Savings and Loan voluntarily entered receivership. The run continued. We considered what everyone wanted to avoid -- closing all savings and loans. Instead, on Tuesday I passed an executive order limiting withdrawals to $1,000 in a 30-day period -- an action which knowingly would cause hardships but was less disastrous than closings and necessary to stem the tide and begin the process of protecting the depositors.
We considered the need for a special session of the General Assembly. Overnight it became obvious to me -- like the run -- it too was inevitable and, therefore, should be held as soon as possible to enact a plan and restore confidence. On Wednesday, I issued the call.
Important policy decisions are obvious in solving a problem of this magnitude and one which vitally affects so many of our citizens. The most important of these is -- does the State have any responsibility to protect depositors in MSSIC associations? Certainly no legal responsibility.
But in my view -- and that of many others -- a very strong moral responsibility.
MSSIC was established by act of the legislature many years ago. The Governor appoints three members of its board. It is regulated by a State agency. For these and other reasons the credibility and good name of Maryland were on the line.
Consequently the legislative package before you reflects that responsibility -- that the State should take steps to protect the deposits of thousands of citizens in Maryland and across the country. Package's Three Elements
Quite simply, this package contains three main elements.
One is to influence larger associations -- those with total assets exceeding $25 million -- to qualify as quickly as possible for coverage by the Federal Savings and Loan Insurance Corporation. Where necessary and possible without unduly jeopardizing the State's outstanding credit rating, we would help ease the path to qualifications and set an early deadline for achievement of such coverage.
The second element involves the encouragement of smaller associations to also qualify for FSLIC coverage and would provide a greater period for them to develop their eligibility. The ultimate goal is to make certain that all Maryland associations -- big and small -- obtain Federal insurance. To protect their depositors -- not the owners, not the investors.
In addition, the legislative package includes the granting of broad necessary powers to enable the Governor to move with greater swiftness and certainty in the prevention or ending of such emergencies. These powers would automatically terminate July 1, 1986.
Let me emphasize that it is neither accurate nor helpful toward solution of this crisis to describe any part of this package as a bail-out or a break for those few whose ineptitude, mismanagement or greed might have contributed to the current difficulty. It is our aim to hold them accountable for their actions or their lassitude. Lifeline for Depositors ----
Instead, this is a lifeline to those hard-working, thrifty depositors who have made possible a savings and loan industry which is a vital factor in our economy for so many. It makes possible that part of the American dream which is home ownership. It creates jobs for the craftsmen who build those homes, transport materials to the building sites, provide the services -- the architecture, the planning, the insurance, the maintenance -- which result from all this.
It is therefore in the best interests of our people and our State to provide protection for the depositors upon whose thrift so much of our State's economic health depends.
In this way, we will also demonstrate to the rest of a watchful nation that the government of Maryland is prepared to meet, however conplex and vexing, such a crisis, quickly and effectively.
Ladies and gentlemen, I cannot conclude without acknowledging the invaluable assistance given me -- and the people of Maryland -- by representatives of the United States government. This is especially true of those from the Federal Reserve Board and the Federal Savings and Loan Insurance Corporation who have walked with us every step of the way.
Even now many of these are helping to expedite the numerous applications from associations which have already moved to qualify for FSLIC coverage. The legislation before you will expedite this necessary step for many others which could not do so without it.
Ladies and gentlemen, in the life of every State there are times when prompt, thoughtful action by elected representatives of the people can prevent the conversion of crisis to disaster.
In Maryland, the time is now.