State regulators confident R.I.'s problems will not spread to Md.

January 05, 1991|By Timothy J. Mullaney

State banking regulators are confident that the problems of Rhode Island credit unions will not spread to Maryland and that the privately sponsored fund that insures the deposits of most state-chartered credit unions has enough money to handle the situation if they do.

Rhode Island has been rocked this week by news that several of the biggest credit unions in the state are on the edge of failure because of poor management, and that the fund that insures deposits of credit unions and some banks and thrifts is insolvent.

Those problems, partly caused by an alleged $13 million embezzlement by a banker, prompted Rhode Island's new governor to close 35 credit unions earlier this week.

But Maryland's 13 privately insured credit unions are much smaller than their Rhode Island counterparts, have much stricter limits on the types of loans they can make and are examined much more often than Rhode Island credit unions, said Maryland Banking Commissioner Margie Muller.

"They are all in a condition we know intimately," she said. "We get monthly figures, so we know where they are. . . . None of them are in troubled condition."

Most of Maryland's credit unions have federal deposit insurance. The 13 privately insured institutions insure their deposits through Towson-based Credit Union Insurance Corp.

The company insures only $63 million in deposits, Ms. Muller said, far less than the $1.3 billion in assets at privately insured Rhode Island institutions. Its net worth is more than $4.70 per every $100 of deposits, the regulator said, more than enough to cover even unanticipated problems.

"The federal credit union insurance fund is at $1.26," she said. "The FDIC [the Federal Deposit Insurance Corp., which insures bank deposits up to $100,000] is at about 70 cents."

Maryland's state-chartered credit unions don't have the exposure to loan losses that have plagued Maryland banks because they aren't allowed to make commercial loans or most types of real estate loans, Ms. Muller said.

Rhode Island credit unions were allowed to make commercial real estate loans, and many of them made bad loans.

"We don't make anything but small consumer loans," said Otis Hendrix, chief executive of Fort Meade Community Credit Union in Anne Arundel County. "We don't do real estate loans and commercial loans. We're not allowed to. We're in a very regulated environment."

The rules that Maryland applies to state-chartered and privately insured credit unions are also stricter and more risk-averse than standards that federal regulators impose on federally insured credit unions, Ms. Muller said.

Most credit union loans in Maryland are either car loans or personal loans, according to data published by IDC Financial Publishing Inc., a Wisconsin company that ranks the fiscal stability of banks, thrifts and credit unions.

"It's harder to get money from a credit union than it is from a bank," said Mary Jo Woodrum, manager of the Post Office Credit Union of Maryland Inc. in Baltimore. "We're in better shape than the banks, and our insurance fund is in better shape than the FDIC."

Ms. Woodrum said the maximum unsecured personal loan at her credit union is $7,500, which helps hold down risks of big loan losses. The biggest car loan available is $23,000.

As a group, credit unions based in Maryland have much higher ratings than Rhode Island institutions, according to IDC's analysis of financial information reported in mid-1990.

The average Maryland-based institution -- including both privately insured and federally insured credit unions -- scored 158 out of a possible 300 in IDC's rating, well above the Rhode Island average of 130.

Maryland's score was rated average, but just seven points below an excellent rating. Rhode Island's rating was also average, but only six points above a below-average rating.

Mr. Hendrix said that enforcement of the rules is tighter in Maryland than in Rhode Island as well.

"I couldn't believe it when I read that some of those institutions hadn't been examined [by the state] for five years," he said.

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