The Maryland Senate today unanimously approved legislation that would strengthen regulations for the state's savings and loan industry, which was crippled last year by financial abuses that flourished under weak state oversight.
At the same time, the Senate rejected warnings from some of its members that the state faces another savings and loan crisis if it does not force all thrifts into a federally chartered system by 1989.
The 47-to-0 vote came exactly one month after the House of Delegates unanimously passed more stringent S&L regulations, and nearly 11 months after Maryland's system of private S&L deposit insurance collapsed in the wake of depositor runs. The Senate and House versions now must go to a conference committee to resolve the differences. If enacted by the legislature, the measure would go to Gov. Harry Hughes, who sponsored the bill.
The Senate bill, as well as its House counterpart, would grant broad new authority to the state's chief savings and loan regulator and would sharply curtail the thrifts' investment and lending practices. But the Senate inserted in its version provisions that would permit consumer loans and account overdrafts for thrift employes and would permit state-chartered federally insured thrifts to make real estate investments in the southeastern states. The House bill would bar the thrifts from investing more than 10 percent of their assets outside of Maryland, the District and four neighboring states.
In addition, the Senate consciously set out to protect more than 50 small savings and loans.
In a separate development, legislative sources said, Mellon Bank Corp. of Pittsburgh has sweetened its offer to the state to acquire most deposits at the crippled Community Savings & Loan Association of Bethesda, perhaps clearing the way for its proposed sale.
Mellon, the sources said, is prepared to accept $2 million less than the $120 million the state promised to pay Mellon for acquiring the association. The company is also willing to reduce the $60 million it asked the state to pledge to offset possible future losses in Community's portfolio of assets, sources said.
The unanimous vote in the Senate today reflected the popularity of new savings and loan regulations in an election year when thousands of depositors at four thrift associations still have virtually no access to their accounts. But the final vote masked a bitter, hour-long floor fight over the question of whether the state that suffered two severe savings and loan crises in less than 25 years should stay in the business of regulating thrift institutions.
The House avoided that debate last month by adopting the bill with nearly all of the recommendations of its author, Wilbur D. Preston Jr., the special counsel who investigated the causes of last year's savings and loan crisis. Preston termed the crisis a "history without heroes," a story of near-total failure by government to rein in those thrift association owners who manipulated traditional S&Ls for personal profit.
In its effort to protect small thrifts, the Senate first agreed today to allow institutions with assets of $15 million or less to seek waivers from regulations and then crushed an attempt by Sen. Stewart Bainum Jr. (D-Montgomery) to close down the state's S&L regulatory machinery.
"It's easier for the industry to manipulate regulators at the state level than the federal level," said Bainum, who led the fight on the Senate floor today to end state chartering of savings and loans and to force all thrifts into the federal system of insurance and regulation.
Bainum and a coalition of conservative Democrats and Republicans argued that the lesson of the S&L scandals of the early 1960s and 1985 was the inability of state government to regulate the thrift industry adequately. Bainum offered an amendment that would force all state-chartered savings and loans, including small neighborhood thrifts, to obtain federal deposit insurance by late 1989 or face dissolution.
A virtually identical amendment, also sponsored by Bainum, failed Wednesday in the Senate 23 to 20.
"The small S&Ls of today will be the large institutions of tomorrow," said Sen. Sidney Kramer (D-Montgomery).
"There are a lot of nice puppies out there, but puppies grow up to be dogs," said Sen. Walter M. Baker (D-Cecil). "We don't need such dogs in Maryland."
However, the amendment's supporters were up against an impressive array of Senate leaders, most notably Minority Leader John A. Cade (R-Anne Arundel), who rose four times during the debate to oppose Bainum's proposal.
Cade and others argued that Maryland should preserve its oversight of S&Ls because of the severe financial difficulties at the Federal Savings and Loan Insurance Corp., the insurer of U.S.-chartered thrift associations. They said that small associations, such as the ethnic-oriented thrifts in Baltimore neighborhoods, were the victims, not the cause, of the savings and loan crisis.
The amendment failed 30 to 14.
Bainum did succeed in amending the savings and loan bill to include a directive to Gov. Hughes to prepare by this summer a list of Maryland elected officials who may have acted on "insider" information by quietly withdrawing their funds before the crisis arose.
Hughes was reported by legislative leaders today to be nearing an agreement with Mellon Bank over the sale of Community, whose 27,000 account holders have had only limited access to their funds since last September.
One official, who asked not to be identified, said lawyers for the Hughes administration and Mellon were scheduled to complete much of the paper work for the sale during the weekend.