Maryland Curbs S&L; Pay-Outs to Avert Panic

WASHINGTON —  Hoping to avert a panic by anxious savings and loan customers, Maryland Gov. Harry R. Hughes Tuesday placed a $1,000-a-month limit on withdrawals from accounts at 102 state-chartered savings and loan associations.

In addition, Hughes summoned a special session of the Legislature for Friday to consider measures to restore public confidence in the savings institutions.

Long Lines of Depositors

The governor signed an order limiting withdrawals after an anxious day in which nervous depositors, seeking to withdraw their money, formed long lines at branches of two of the savings associations. Two others that have been plagued by customers’ runs on deposits were placed under the control of state regulators Monday.

“This was a step we did not want to take but, because of the situation and the continued erosion of the savings and loans, it now becomes necessary,” Hughes told a news conference in Annapolis. He pledged that customers at the state-chartered associations “will come out whole on their deposits.”

Hughes said that he will ask the Maryland General Assembly for “very broad powers” to deal with the immediate crisis. For the longer run, he wants new laws forbidding the associations to operate unless they have federal insurance protection or can convince state authorities that they are financially sound.

Hughes and other Maryland officials believe that the $1,000-a-month withdrawal limit, although inconvenient for customers, is less disruptive than a total shutdown of state-chartered associations.

Ohio Closed 69 S&Ls;

In March, Ohio Gov. Richard F. Celeste decided to close 69 state-chartered savings associations after a similar panic by depositors. Celeste let the associations reopen gradually after they qualified for federal insurance or were merged into healthy federally chartered institutions.

The collapse in 1983 of Commonwealth Savings Co., a major state-chartered savings institution in Nebraska, cost depositors tens of millions of dollars. Massachusetts, Pennsylvania and North Carolina also allow private insurance funds to protect deposits, but public confidence in these institutions has been unshaken.

The deposits of customers of federal savings and loan associations across the nation are insured up to $100,000. Congress has declared that the full credit and support of the U.S. government stand behind the federal insurance fund, a guarantee sufficient to dispel any nervousness by customers. There has been no depositor panic at federal associations in Maryland or Ohio.

The state-chartered associations have been attracting large amounts of deposits because they often have been paying higher interest rates than their federally chartered counterparts.

Hughes summoned the executives of the state-chartered associations to a meeting Tuesday night to learn about the process of qualifying for federal deposit insurance.

Applications already have been received from six Maryland institutions, according to Martha Gravlee of the Federal Home Loan Bank Board, which regulates federally chartered savings and loans. All requests to qualify for federal insurance will be considered “expeditiously,” she said.

The state-chartered associations in Maryland are protected by a private insurance company, the Maryland Savings Share Insurance Corp., which has an insurance fund of $140 million. However, the existence of the private insurance fund has not seemed to quiet the fears of customers at four savings associations.

The crisis began Thursday, when news broke of a shake-up in the management of Old Court Savings & Loan, which has assets of $873 million. Customers began lining up at some branches in the Baltimore area, and the crisis deepened after state Atty. Gen. Stephen Sachs said that he was investigating the actions of some top Old Court officers.

Firm Sells Office Tower

On Monday, a run began at some branches of Merritt Savings & Loan, which was forced to sell its $38-million office tower to improve its financial situation.

Both Old Court and Merritt were placed under control of conservators appointed by Maryland Savings Share Insurance, and withdrawals from individual accounts were limited to $1,000 a month. The run on deposits then dissolved at Old Court and Merritt, prompting a belief by state officials that the situation was under control.

But long lines of depositors suddenly appeared at 9 a.m. Tuesday at two previously unaffected institutions, Custom Savings & Loan and Fairfax Savings & Loan.