Maryland's General Assembly did the right thing. It passed the savings and loan bill, a crucial contribution to a fast and safe resolution of a genuinely dangerous financial crisis. Within days some 52,000 depositors in three state- insured savings and loan associations will have at least limited access to their money. Not long after that, the limits will be lifted as a New York bank, Chase Manhattan, takes over those three S&Ls and converts them into branches of its new Maryland subsidiary. Beyond that, the legislation passed yesterday would enable other banks similarly to take over other threatened S&Ls and assume responsibility for their frozen deposits. That is the process by which Gov. Harry Hughes now can expect to reduce the state's liabilities to a scale that its modest insurance fund can handle.
The State Senate voted only with many doubts and fears that it was giving away too much -- especially to Gerald S. Klein, the owner of the failed Merrit Commercial Savings and Loan of Baltimore. That's possible, but it was an unavoidable risk. The affairs of Merritt are exceedingly complex; to get a full and precise accounting of its assets and of the concessions to Mr. Klein would take many months. There are many estimates of these concessions' actual value, and they vary greatly.
The General Assembly confronted a hard choice, but in the end the legislators voted in favor of the depositors -- a decent and justified decision. As for Merritt, both state and federal authorities are looking into its collapse. If they should find evidence of fraud, there is nothing in yesterday's legislation that would prevent criminal prosecution.
It was not solely a concern for depositors that argued in favor of a rapid resolution of the Maryland S&L cases. The state had insured those deposits, and yet it wasn't paying. That was hardly a reassuring sight for other depositors in other institutions. Last week Edwin J. Gray, the chairman of the Federal Home Loan Bank Board, testified that some 300 federally insured S&Ls -- one out of every 10 -- are insolvent and that their total deposits come to $90 billion compared with the federal S&L deposit insurance fund of $3.2 billion. The federal government's resources are incomparably stronger than Maryland's, and in an emergency the U.S. Treasury would lend the insurance fund as much as it needed. But as Mr. Gray spoke, there was an uneasy resonance between the financial strains that he described and the protests of the angry depositors in Maryland.
Financial stability requires public authorities to keep their promises, and Maryland's state government had made an explicit promise to many thousands of people with money tied up in the failed S&Ls. It was essential to keep that promise. That is what the General Assembly has now voted to do.