PROVIDENCEE, R.I. — PROVIDENCE, R.I. -- After witnessing the 1985 collapse of the private thrift insurance fund in Maryland and similar entities in other states, Rhode Island officials launched an investigation into the financial safety net of their own state-insured banks and credit unions and found it was fraught with problems.
The report examined the events in the Maryland crisis and presciently predicted that they could occur in Rhode Island.
None of its warnings was made public, however. Their existence remained a secret, in part to stem panic. Yesterday, in the wake of the current crisis, its contents were reprinted in full by the Providence Journal, which received a leaked copy earlier this week.
News that the state had long been aware of the potential disaster added fuel to a spreading political firestorm.
Yesterday, the newly sworn-in governor, Bruce G. Sundlun, placed the state's superintendent of banking on leave pending an investigation and suggested that "it would be a good idea" for her to retain legal representation.
Moreover, Mr. Sundlun acknowledged hearing rumors that many people had inside information on the pending insolvency of the private insurance fund and the subsequent closing of numerous banks.
An investigation into the fiasco will be headed by the president of Brown University, Vartan Gregorian, a new arrival in a state infamous for its intertwined and entrenched relationships.
The confidential 1985 report was given to Gov. Edward DiPrete, whose term expired Monday, just before the state's banking crisis exploded with the insolvency of the insurance fund and the emergency closing of the 45 banks and credit unions. "The Rhode Island Share and Deposit Indemnity Corp. will perform no better than the State-sponsored funds which recently failed so completely in Nebraska, Ohio, and Maryland . . . .Yet, as the Maryland experience confirms, the Rhode Island public and the financial community will judge harshly any failures to deal with it decisively and effectively," it said.
Noting the lengthy delays in restoring funds and depositor protests in Maryland, numerous recommendations were made in the 1985 report for reforming the Rhode Island banking structure. They were ignored. The state attorney general responsible for the report's preparation, a crusading ex-nun named Arlene Violet, was voted out of office in 1986 soon after the report was completed. Limited recommendations for reform by Mr. DiPrete died before the state's Legislature.
Several months ago, Rhode Island was rocked by the mysterious disappearance of Joseph Mollicone Jr., head of the Heritage Savings and Loan Co., whose failure sparked the Rhode Island banking crisis. He had contributed heavily to the political campaigns of the former governor and both the former and current mayors of Providence.
The report cited problems with Heritage as well as irregularities at a number of other banks that were closed last week. It also noted some bank managements were strikingly resistant to bank examiners.
Highlighted was the case of the Greater Providence Deposit Corp., which was denied insurance by federal banking regulators yesterday. The son of the president was said in the Violet report to have threaten examiners with an assault rifle, deflated the tires of their cars and subjected them "to all-day staring."
Meanwhile, the state scrambled to provide assistance for bereft individuals. Twenty-two institutions will reopen early next week, but 16 will not reopen soon, if ever, and no decision has been made on seven others, leaving hundreds of thousands without access to their money.
Starting Monday, small withdrawals for food, fuel, medicine and housing will be possible for those desperately in need. The state may end up providing the money. At least one of the closed banks, has no cash to return to depositors, Mr. Sundlun said, and others have $20 to $25 per account.
bTC Sheldon Whitehouse, the governor's legal counsel, said, "This is a social program not a reimbursement."