GOV. HARRY HUGHES' plan for the failed Maryland savings and loan associations proposes a rescue -- but a remarkably slow rescue, cautious and not terribly generous. The state's responsibility in the past year's S&L collapses was not a minor one. The state had legal obligations to oversee and regulate these institutions, but never got a grip on its job. Although these S&Ls were insured only by a private fund, the state allowed the fund and its customers to engage in advertising that would have suggested state backing to any but the most sophisticated and careful investor.
Last spring Mr. Hughes made the decent and honorable decision to see that the depositors were paid. Since then he has been trying to devise a way to do it. The plan that he has now announced will make depositors in one S&L, Old Court, wait four years for the last repayments of their money. While the governor is prepared to contribute state funds to the considerable costs of settling the bankrupt S&Ls' affairs, most of the burden will apparently be borne -- in the form of interest forgone on their frozen funds -- by the unfortunate depositors themselves.
The governor's hesitations are understandable. He has undertaken a duty to the depositors, but he regards it as secondary to his duty to Maryland's taxpayers. The fast and clean way to resolve the failed S&Ls' liabilities would be to float a state loan, pay off the depositors immediately and then retire the loan over the years as state insurance officials slowly unscrambled the S&Ls' assets. Mr. Hughes doesn't care for that idea. He fears that a loan of that size would cost the state its triple-A credit rating.
Instead he's going to squeeze a little here, pare a little there, and borrow -- a dubious choice -- from the state's transportation trust fund. He's willing to put up some state money to help sell off the three smaller S&Ls in which deposits have been frozen, and to make initial payments to the Old Court depositors. But most of the customers of Old Court are going to have to wait for most of their money.
All of that makes sense from the point of view of the state of Maryland. It's less satisfactory as public policy in a country in which the financial system is under strain and the only defense against bank runs is deposit insurance paid promptly and fully. Gov. Hughes doesn't have to think about the next time because, for Maryland, there won't be a next time. Its state-regulated S&L industry is to be pushed out of existence altogether. But federal regulators have to think constantly about the next time. For depositors, the lesson in this unhappy experience is to be sure that you know precisely who's insuring your money. In the past year's turbulence, the federal deposit insurance agencies have paid depositors instantly and reliably. That's more than Maryland can say.