PROVIDENCE R.I. — PROVIDENCE, R.I. -- Depositors in Rhode Island began the new year yesterday with the first emergency bank holiday since VTC President Franklin D. Roosevelt's inaugural in the depth of the Depression.
State troopers guarded the entrances to 45 financial institutions as 300,000 depositors with $1.7 billion in assets were faced with the immediate prospect of finding cash elsewhere and the possibility that their money would never be returned.
Seven of the smaller institutions among the 45 will reopen Monday, and 15 others are expected to reopen soon, Gov. Bruce G. Sundlun announced yesterday evening. Eleven others described only as among the largest in the state are "in limbo."
Efforts are being focused on obtaining federal deposit insurance for the solvent institutions among the 45. For the others, "other means" will be tried to protect depositors, including forced mergers and infusions of outside capital.
"It is my expectation and my hope we will be able to protect all deposits by one means or another," Mr. Sundlun said.
In Maryland's 1985 thrift crisis, the state took over responsibility for insuring deposits at 102 state savings and loans when several large thrifts were facing bankruptcy and others were threatened by a run on deposits that began in May at Old Court Savings and Loan, the Associated Press reported.
The private insurer, Maryland Savings-Share Insurance Corp., did not have the assets to cover the pending losses, and the General Assembly set up a new state agency, the Maryland Deposit Insurance Fund, to assume the insurance responsibilities.
It was almost a year before a judge approved a plan that allowed 34,500 clients of Old Court to begin withdrawing their money, and Maryland did not announce final payments until November 1989.
In Rhode Island yesterday, the governor pointedly refrained from suggesting a state bailout, a potential political nightmare in a state with a deficit that has already reached $160 million and appears to be growing.
The governor and his staff, in office only a day, searched for phones in the unfamiliar Capitol and raced between meetings with numerous regulators and federal officials in an effort to hurriedly restructure the hodgepodge network of public and private agencies overseeing the state's financial institutions.
"Regulations should have been stronger," Mr. Sundlun said.
The crisis stemmed from the action Monday by a private insurer, the Rhode Island Share and Deposit Indemnity Corp., to close its doors. It had assumed obligations last year for repaying depositors at two "loan and investment banks" -- a local term for S&Ls -- and apparently faced insolvency.
With the collapse of the private insurer, state law precluded institutions it insured from reopening. Moreover, the insurer insured institutions that had already begun to be hit with rising withdrawals, and state officials were concerned about a full-fledged run.
"We didn't close 45 institutions on my inaugural day for a non-business purpose," Mr. Sundlun said. "We did it because we had to . . . to protect assets and to protect deposits. . . . The money is a lot safer today with the institutions closed than it would be with them open."
All seven institutions scheduled to reopen Monday are small employee credit unions, including one for the Providence Journal, the state's largest newspaper, another for the state employees and a third for a local hospital.
Also included in the 45 institutions were three banks, seven loan and investment companies and 28 other credit unions. State officials declined to name 11 institutions considered to be deeply troubled.
Other major New England banks have announced vast losses recently, largely as a result of bad real estate loans, and it is thought that the same problems exist in at least some of the closed institutions.