Bank Holidays & Fund Suspensions
United States: Rhode Island Limited Bank Holiday, 1991
Announced: January 1, 1991
Purpose
To prevent an uncontrolled run at financial institutions that no longer had deposit insurance and protect depositors, creditors, and shareholders at affected institutions
Key Terms
- Announcement DateJanuary 1, 1991
- End DateCredit unions and banks approved by federal examiners reopened with federal insurance on January 7, 1991; all depositors, except some former executives and other insiders who the state pursued restitution against, were repaid in full by November 1995
- Legal AuthorityProclamation of the governor, under a 1933 law
- AdministratorRhode Island executive branch and Rhode Island Depositors Economic Protection Corporation (DEPCO)
- Communication and DisclosureMixed messages about the amount the state would be able to pay back until the governor signed the DEPCO Act; A column called “Crisis Line” in the local newspaper facilitated a dialogue between depositors and government officials
- Permitted WithdrawalsDepositors could apply for emergency withdrawals of up to $1,000 per month, later increased to $1,500; RI governor proposed but then withdrew a proposal to issue scrip in place of cash for some depositors
- Treatment of Depositors or InvestorsAll depositors either benefited from their banks’ reopening with federal deposit insurance or were eventually compensated in full
- OutcomesAll depositors eventually recovered all of their funds; other states pressured uninsured credit unions to get federal deposit insurance
- Notable FeaturesDEPCO funded depositor payouts through bonds backed by excess revenue from the state sales tax; the state recovered $190 million toward depositor payouts from successful lawsuits against insiders and accounting, financial, and legal firms
In 1990, the Rhode Island Share and Deposit Indemnity Corporation (RISDIC) was a private mutual deposit insurance corporation funded by member institutions. Late that year, after the failures of two of its insured institutions in July and October, other RISDIC member institutions faced large depositor withdrawals, as concerns began to focus on the financial health of RISDIC itself. RISDIC had maintained inadequate reserves, and on December 31, 1990, it found itself lacking the resources to cover depositor withdrawals from member institutions. RISDIC leadership requested a state-appointed conservator, which meant that all its member institutions no longer had the deposit insurance that Rhode Island law mandated. On January 1, 1991, to prevent an uncontrolled run on financial institutions that no longer had deposit insurance, incoming Governor Bruce Sundlun declared a bank holiday for the 45 banks and credit unions that RISDIC had insured. Management remained in place at the closed institutions; state authorities encouraged them to seek federal deposit insurance or merge with healthier institutions. Twenty-two credit unions reopened on January 7 with federal deposit insurance after federal examiners had reviewed their assets and capital adequacy; a further four reopened by the end of January. On February 8, the governor signed legislation creating the Depositors Economic Protection Corporation (DEPCO) to facilitate liquidations or sales of banks that could not access federal insurance. Most depositors had been repaid within 18 months of the governor’s executive order, supported by asset sales; $637.5 million in DEPCO bond issues, of which $125 million received a federal guarantee; and $190 million in clawbacks from insiders and others implicated in RISDIC’s failure. Ultimately, all depositors recovered 100% of their deposits.
Sources: DBR 1991; DBR 1992.
The Rhode Island Share and Deposit Indemnity Corporation (RISDIC) was a state-chartered private insurance company created in 1971 to provide insurance for credit unions chartered in Rhode Island, expanding to other financial institutions in 1976 (Pulkkinen and Rosengren 1993). It was, by law, a nonprofit, mutual corporation owned by its member institutions (Gregorian 1991; Todd 1994). A 1977 law required all Rhode Island depository institutions to have insurance (Pulkkinen and Rosengren 1993). RISDIC’s basic insurance was $100,000 per account. However, in 1985, RISDIC began to allow institutions that paid additional premiums to insure up to $500,000 per account for a fee and even offered unlimited coverage on specific types of accounts (Kostrzewa 1990a; Pulkkinen and Rosengren 1993).
By the late 1980s, many states had begun moving away from private deposit insurance (English 1993). RISDIC insured increasingly larger accounts and covered “a more diverse group of institutions” to contend with the migration of stronger financial institutions in Rhode Island toward federal deposit insurance from the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA) (Pulkkinen and Rosengren 1993, 4). The failures of private insurance funds in Ohio and Maryland in early 1985 accelerated migration away from private deposit insurance. Deposits in large, weak institutions still under RISDIC coverage rose 40% in real terms between 1980 and 1989 (Pulkkinen and Rosengren 1993). Eight of the largest credit unions paid for the $500,000 coverage as of mid-1990 (Kostrzewa 1990a).
In 1985, then–Attorney General Arlene Violet put together a team of individuals to investigate and report on RISDIC and the financial institutions it insured. Retired banking lawyer Robert Stitt delivered the “Stitt Report” to Violet on December 13, 1985 (Stitt and Black 1991). The report detailed impropriety across RISDIC and its member institutions, mentioning “unduly concentrated loans to Officers, directors and other Insiders” and “microscopic reserves” (West 2014). The report also said that three RISDIC members, Marquette Credit Union, East Providence Credit Union, and the Greater Providence Deposit Corporation,FNGreater Providence Deposit Corporation and Greater Providence Trust Company both closed and were listed in receivership in the 1992 Rhode Island Department of Business Regulation annual report (DBR 1992). They appear as a single entity called Greater Providence Deposit & Trust in the documentation concerning the acquisition by Northeast Savings Bank (see Key Design Decision No. 2, Part of a Package) (DEPCO n.d.). were in poor condition. A run on any one of the three would bring down RISDIC, given its inadequate reserves (English 1993; West 2014). The attorney general and her team tried to warn the administration of then-Governor Edward DiPrete of the magnitude of the situation, and a member of the General Assembly attempted to introduce a bill mandating federal deposit insurance for Rhode Island financial institutions. Officials from the Federal Reserve Bank of Boston also met with the governor in March 1986 and helped draft that bill, but it found little support in the General Assembly (Syron 1991).
The scenario predicted by the Stitt Report began to play out when Jefferson Loan and Investment Company ceased operations on July 9, 1990. Jefferson was reconstituted as a subsidiary in another RISDIC-covered institution, at a significant cost to RISDIC (Gregorian 1991). On October 18, 1990, RISDIC secretly took over Heritage Loan and Investment Company, where embezzlement by the bank’s chairman had rendered the firm insolvent (Preston 2015; Pulkkinen and Rosengren 1993). RISDIC had insured deposits at Heritage Loan and Investment Company up to $500,000. The cost of these two interventions drained RISDIC’s liquid assets and triggered large depositor withdrawals at other RISDIC-insured institutions (Pulkkinen and Rosengren 1993).
Meanwhile, Rhode Islanders went to the polls on November 6 and elected Democrat Bruce Sundlun to replace Governor DiPrete (Garland 1990). The failure of Heritage hit the headlines on November 12, 1990; in the resulting bank run, depositors withdrew $13.6 million in four days (Farzan 2023). On November 16, the newspapers reported that RISDIC-insured institutions had begun to apply for federal deposit insurance (Kostrzewa 1990b; Kostrzewa 1990c). On the same day, federal regulators from the NCUA began to examine RISDIC-insured institutions to consider their applications (Bumgardner 1991). Federal regulators and representatives from the Federal Reserve Bank of Boston also reached out separately to the outgoing and incoming governors’ staffs to discuss the problems at RISDIC (Syron 1991). However, Governor Sundlun’s staff said the issue was described to them at that time as simply a “timing problem”—if some institutions announced they had insurance, it might cause a loss of confidence for others (Sundlun 1991e, 203).
By mid-December, state and federal officials had become extremely concerned about RISDIC’s ability to insure its members. On December 19, 1990, the chairmen of the FDIC and NCUA delivered their preliminary findings to the outgoing and incoming governors and their staffs. Their examiners estimated that RISDIC-insured institutions were sitting on a potential loss of up to $500 million (Bumgardner 1991). Sundlun later wrote that the meeting with federal regulators “was the first day I heard anything about credit unions” (Sundlun 2001).
Deposit withdrawals from RISDIC-insured institutions increased in the final weeks of the year. By December 31, 1990, RISDIC lacked the resources necessary to satisfy depositor withdrawals in its banks. RISDIC’s board of directors requested that the state appoint a conservator, and RISDIC entered receivership (Pulkkinen and Rosengren 1993; Sundlun 1991a).
Immediately after being sworn in, Governor Sundlun issued an executive order closing the 45 RISDIC-insured banks, credit unions, and loan and investment companies indefinitely and directing the director of the Department of Business Regulation (DBR) to take the necessary steps “to protect the depositors of the aforesaid institutions, including preparation of a plan for emergency or hardship access to depositors’ funds” (Sundlun 1991a). This action impacted 350,000 accounts with a total value of $1.2 billion. That represented one-third of Rhode Island’s population; for comparison, the recent Maryland and Ohio crises, which also involved privately insured deposits, had affected just 4% and 8% of their populations, respectively (Prosky 2018; Reed 1991).
On Sunday, January 6, Sundlun announced his proposed plan for the 16 institutions that had been rejected for federal deposit insurance: (1) starting January 7, allow depositors at closed credit unions to apply at various banks for $1,000 in emergency hardship aid; (2) as early as January 21, allow small depositors to receive up to $2,500 from savings accounts and up to $10,000 from checking accounts; (3) merge all 16 banks and credit unions into a new state agency, the Depositors Economic Protection Corporation (DEPCO); (4) use tax money to make up the anticipated shortfall after the sale of the loans and assets of the closed institutions; (5) pay off all depositors up to $100,000 over up to four years; and (6) issue scrip to depositors equal to the balance in their accounts (Kostrzewa and Hi 1991). He also announced that a consortium of the nine Rhode Island banks had agreed to lend the state $150 million to get some cash quickly to depositors (Sundlun 2001). Management remained in place at the closed banks. The governor encouraged them to continue to seek federal deposit insurance or merge with healthier institutions and look at DEPCO as a last resort (US House Finance Committee 1991).
Over the ensuing month, most aspects of that plan were dropped or significantly revised. By January 7, the state was able to start getting hardship cash out to the 22 institutions that reopened with federal insurance, as the governor’s staff and legislators negotiated (Syron 1991). But the healthy banks ultimately pulled out of their commitment to lend the state $150 million, and the governor quickly withdrew the scrip proposal in the face of public opposition (although in June 1992, DEPCO did use IOUs to pay out the final depositors of four banks) (DEPCO n.d.; Downing 1991e; Kostrzewa 1991; US House Finance Committee 1991).
Intense negotiations between the governor and state legislators continued throughout the month of January over two key issues: How much to promise depositors and how to fund the bailout (Downing 1991a).
Funding was always the biggest constraint for the state. The state was under pressure to find funding to begin repaying depositors at closed institutions as soon as possible. The new governor was reluctant at first to issue bonds on the market because of the state’s tight fiscal situation and the size of the need relative to its outstanding debt. Sundlun initially sought to limit the state’s exposure to $150 million—at one point, promising to veto any bill that didn’t set an explicit limit; at other points, proposing pro rata payouts above $100,000 based on the quality of an institution’s loan book, or capping payouts above $100,000 at 65%. Those proposals were consistently blocked by the leadership in the General Assembly, who wouldn’t accept anything less than 100% for all depositors (Phipps 1991).
On January 28, the governor allowed nine of the 16 closed institutions to send checks to depositors up to the amounts he had announced January 6, and many depositors began to receive some of their funds for the first time since the holiday began. He said the other seven institutions couldn’t make payouts because they were negotiating with a potential acquiror (Downing 1991d).
On February 8, the governor signed the DEPCO Act to protect the interests of depositors in the remaining closed institutions (Chen et al. 2020; Sundlun 1991e). DEPCO purchased assets from institutions in receivership and provided gradual payouts to depositors through the sale of assets (Pulkkinen and Rosengren 1993; US House Finance Committee 1991).
Thirty-three of the 45 closed institutions either reopened with federal deposit insurance or repaid their depositors in 1991 (Pulkkinen and Rosengren 1993).FNTwo institutions were nondepository and became inactive (Pulkkinen and Rosengren 1993). By mid-1992, DEPCO had borrowed $637.5 million through bond issues (DEPCO 1993). DEPCO completed all depositor repayments by the end of 1993, and all depositors recovered the full amount, except for some former executives and other insiders against whom the Rhode Island government pursued legal restitution (Chen et al. 2020; Kostrzewa 2002; Todd 1994). However, losses in many of the RISDIC-insured banks left Rhode Island taxpayers facing a $356 million cost (see Key Design Decision No. 4, Administration) (Todd 1994). DEPCO recovered $190 million of this through litigation against accounting, financial, and legal firms that had audited or provided other services to RISDIC and RISDIC-insured financial institutions, as well as through lawsuits against certain insiders (Chen et al. 2020; Kostrzewa 2002; Todd 1994).
Rhode Island’s crisis led many other states to impose deadlines for obtaining federal deposit insurance. The NCUA said in April 1991 that it had already received 600 applications for federal insurance from the remaining 1,500 credit unions that remained on private insurance and that five states had asked the NCUA for help to transition entirely from private insurance to NCUA insurance (Bumgardner 1991). Figure 1 shows a timeline of events related to the credit union crisis in Rhode Island.
Sources: English 1993; Kostrzewa 2002; authors’ analysis.
Richard Syron, then president of the Federal Reserve Bank of Boston, praised the governor’s quick decision to close the banks in a congressional hearing in April 1991. “My own strong view, albeit personally held, is that the governor acted decisively and appropriately in doing so. The reason for that view is that I believe the bank holiday protected poorly informed depositors from having the only deposits left in these institutions” (Syron 1991, 29). Layne Bumgardner, then an official from the National Credit Union Administration, gave similar testimony at the hearing: “The Governor’s action was politically difficult—but courageous and necessary. It likely prevented even further losses” (Bumgardner 1991, 33).
On the other hand, a Federal Reserve Bank of Cleveland working paper asserts that the statewide bank holiday stopped the runs but may have inadvertently created long delays for depositor access to funds (Todd 1994). Despite the expectation that the bank holiday would be temporary, most depositor claims remained frozen throughout 1991, and skepticism about the finances of state-chartered institutions contributed to a second series of runs in late January 1991 on Old Stone Bank (OSB), which was federally insured (Todd 1994; US House Finance Committee 1991). As an alternative, the working paper argues that the state could have returned 70 cents on the dollar for insured deposits in the insolvent RISDIC-insured institutions through prompt liquidation, funded by the state, and sales. Although this path would have been “politically difficult, to be sure,” the paper argues that it may have resulted in less economic and financial pain for the state over time (Todd 1994, 14). The paper notes that the authorities rejected the path of prompt liquidation in January 1991 because it appeared too costly and politically impractical for the state given the size of the problem relative to the state’s budget at the time. As it turned out, the paper notes that “the state has in fact achieved an entirely state-funded solution”(Todd 1994, 17).
Some observers criticized the governor for downplaying the cost to taxpayers in the early days of the crisis. The Providence Journal hired a Washington-based financial consultant, Bert Ely, to evaluate the DEPCO plan in February 1991. Ely predicted—correctly, as it turned out—that the state would need $200 million more cash than the governor and legislatures had estimated to pay back depositors on the schedule the bill set. He compared the low and unrealistic estimates to President George H.W. Bush’s early estimates of the costs of the savings and loan crisis: “Bush got off to a wise and quick start to solve the problem soon after he took office in 1989, but he didn’t ask for enough money in the original bill” (Kostrzewa 1991). Ely said, “And 15 months later, Treasury Secretary Nicholas Brady is now putting realistic cost estimates on the table. That hurt Bush’s credibility, and I think the same thing could happen to Sundlun” (Kostrzewa 1991). Ely also noted that the FDIC pays insured depositors immediately upon a bank’s resolution, not over time as set by the DEPCO Act (Kostrzewa 1991).
Others argued that the state should have imposed losses on depositors above $100,000 to protect taxpayers, as the governor originally proposed. The week the governor signed the DEPCO Act, Providence Journal financial editor Peter Phipps characterized the argument for full depositor payouts as led by lobbyists for builders, bankers, and the wealthy (Phipps 1991). He criticized the secrecy of the negotiations that led to the legislation and the uncapped cost it would impose on taxpayers. “The game is over. The depositors won. The taxpayers lost,” Phipps wrote (Phipps 1991).
In an article 10 years after the crisis, Sundlun writes that “DEPCO’s record is a great success. What DEPCO did has not been matched in any one of the other four states where credit-union crises existed” (Sundlun 2001). He notes that DEPCO had paid all depositors in institutions under DEPCO receivership 100% of their deposits plus interest by October 1993 (Sundlun 2001).
Then–FDIC Chairman L. William Seidman concluded in his memoir,
The Rhode Island experience illustrates how difficult, if not impossible, it is to allow a depositor to suffer a major loss in a bank failure. No matter what free market ideology and our risk-reward system may dictate, depositors will be protected because political careers are at stake. (Seidman 1993, 168)
Key Design Decisions
Purpose1
In July 1990, Jefferson Loan and Investment Company, a RISDIC member, failed. RISDIC reconstituted Jefferson as a subsidiary of Marquette Credit Union, an intervention that cost the insurer approximately $3.9 million (English 1993). Soon after, RISDIC examiners discovered substantial unreported losses at Heritage Loan and Investment Company, and RISDIC was forced to take control of Heritage in October 1990 (Pulkkinen and Rosengren 1993). Losses from both of these interventions drained RISDIC’s liquid assets, and RISDIC leadership levied an additional premium payment of $8.3 million from members in order to restore the insurance fund (Kostrzewa 1990d). However, depositors at other RISDIC-insured institutions began to make large withdrawals in November 1990, a run that accelerated in December (Preston 2015; Pulkkinen and Rosengren 1993).
On December 19, 1990, the incoming and outgoing Rhode Island governors met with the chairmen of the Federal Deposit Insurance Corporation and the National Credit Union Administration, which regulate and insure the deposits of federally chartered banks and credit unions (Bumgardner 1991). At the meeting, the federal supervisors estimated that RISDIC-insured institutions were sitting on a potential loss of $250 million to as much as $500 million (Bumgardner 1991; Seidman 1993; Sundlun 1991d). FDIC said none of the five RISDIC banks were insurable by the FDIC. NCUA said seven credit unions were insurable by its insurance fund immediately; 14 would need some time to comply with changes to become insurable; 11 were not insurable without additional resources; and they had no answer yet on the remaining three.
Governor DiPrete asked the federal supervisors not to transmit their decisions on applications to the institutions for approximately two weeks, when the new governor was in place on January 1 (Bumgardner 1991). The two federal regulators informed the RI authorities that they would not be able to provide federal deposit insurance to failed Rhode Island institutions (Preston 2015). “Taking over insurance losses after they occurred was not our business,” FDIC Chairman Seidman later wrote in his memoir (Seidman 1993, 167).FNAccording to Seidman’s memoir, the governor-elect at that meeting suggested imposing losses on depositors, as they “had chosen to put their money into these institutions because they would receive a higher rate of interest.” Seidman, a law school classmate of Sundlun’s, said that his response to the governor-elect, “as an old friend, was that penalizing depositors in this situation was not going to be easy to do without a political revolt” (Seidman 1993, 166) Seidman informed the governors that the state would have to find the funds to rescue depositors, at least in part using state funds; he also recommended they seek federal assistance from Congress (Seidman 1993, 166). Seidman advised Governor DiPrete not to close the uninsured institutions unless the state had $450 million to cover the losses on their books (US House Finance Committee 1991). He advised incoming Governor Sundlun to put the full faith and credit of the state behind the banks; Sundlun responded that the amount exceeded the state’s outstanding bonds and it would not be able to raise that amount (Sundlun 1991d). Later that day, the president of a large healthy bank in the state gave a similar answer that he was unable to help (Preston 2015).
After that meeting, with the understanding that RISDIC was no longer viable and many of its member banks were at risk of failure, Sundlun advisor Sheldon Whitehouse worked in a war room with officials from the Rhode Island Department of Business Regulation, as well as officials from the US Treasury Department and the George H.W. Bush administration. Shortly after noon on December 31, 1990, RISDIC alerted Whitehouse that it had entered conservatorship, essentially a receivership under Rhode Island state law (Preston 2015). Given that the next day, January 1, was a holiday, this meant that all RISDIC-insured institutions would no longer have the legally required deposit insurance upon the start of business on January 2, 1991 (Preston 2015; Sundlun 1991a).
January 1 was also the day that Governor Sundlun would take office and deliver his inaugural address. The governor-elect’s team met December 31 to review options. They quickly conceived of the long-term solution, a resolution and asset management vehicle that would ultimately come to pass as the Depositors Economic Protection Corporation. However, creating DEPCO would require time to pass legislation, and the uninsured deposits presented an immediate and acute crisis. One option was to assume responsibility for all RISDIC-insured institutions under the full faith and credit of the state. The governor-elect had already rejected this option because nobody knew how big the problem was yet; it would have put Rhode Island taxpayers on the hook for an indeterminate sum. The second option was to immediately place all RISDIC-insured banks into state receivership, an option that authorities decided against because of the potential for catastrophic public confusion and panic. A third “even worse” option not considered would be to allow the uninsured banks and credit unions to open without insurance; this was both disallowed under Rhode Island law and likely to spark an uncontrolled run on institutions that no longer had functioning deposit insurance, according to a memoir by a senior Sundlun staffer (Preston 2015).
Thus, Sundlun and his team decided on the bank holiday approach (Preston 2015). On January 1, 1991, Governor Sundlun issued an executive order declaring a banking emergency and approved the closing of 45 Rhode Island financial institutions insured by RISDIC (Sundlun 1991a; West 2014). The executive order said that the proclamation was required for the protection of shareholders, depositors, and creditors, in the 45 financial institutions named in the order (Sundlun 1991a).
Part of a Package1
Banks that were able to access federal deposit insurance did so and fully reopened, many before the end of January (see Key Design Decision No. 11, Exit Strategy) (Prosky 2018).
The legislation imbued DEPCO with a broad set of powers aimed at providing depositors with access to their funds as quickly as possible (Downing 1991a). Authorities modeled DEPCO after the Resolution Trust Corporation (RTC), a federal response to the failures of thrifts in the late 1980s and early 1990s (Lawson and Engbith 2021; Preston 2015).FNFor a full account of the RTC, see the corresponding YPFS case study (Lawson and Engbith 2021).
Bank management remained in charge of their institutions. The governor encouraged them to seek federal deposit insurance, and DEPCO was empowered to support that process (US House Finance Committee 1991). If federal insurance was not an option and the institution could not repay depositors on its own by liquidating assets or merging, the bank had no other option but to enter receivership (Downing 1991h). DEPCO provided gradual payments to depositors of banks taken into receivership, funding such payments from substantial bond issues and the sale of bank assets (See Key Design Decision No. 8, Treatment of Depositors and Investors) (Downing 1991f). Though the process had standardized criteria, ad hoc adjustments were made for specific institutions (See Appendix: Timelines of Payouts and Mergers by Institution) (DEPCO n.d.).
Rhode Island authorities were proactive in seeking support from federal regulators in order to respond to the financial crisis (Hassenfeld Institute 2018). Among the governor’s earliest plans was the Old Stone Plan, in which Old Stone Bank, a healthy, nationally chartered bank with federal deposit insurance (DBR 1992), would acquire six closed institutions.FNThe institutions were Chariho-Exeter Credit Union, East Providence Credit Union, Columbian Credit Union, Providence Teachers Credit Union, Greater Providence Deposit & Trust, and Blackstone Valley Loan and Investment (Prosky 2018). However, the Office of Thrift Supervision (OTS), OSB’s federal regulator, disapproved of the OSB plan because of depositor haircuts and the state’s unwillingness to provide an unlimited state guarantee. Officials negotiated for several months to try to adjust the terms of the plan such that it would receive OTS approval, but it was ultimately unsuccessful. The OSB plan officially fell apart on September 26, 1991, when OSB announced that it was suspending its efforts to acquire closed Rhode Island institutions (Prosky 2018).
Immediately following the failure of the OSB plan, state officials sought to replace OSB with Northeast Savings Bank (NSB) as the acquirer of the closed institutions. Similar roadblocks delayed the NSB plan, but it eventually received approval from all relevant authorities, with final approval coming from the FDIC on February 12, 1992. NSB agreed to buy four institutions, including four of the six that were originally part of the OSB plan—Columbian Credit Union, Greater Providence Deposit & Trust, East Providence Credit Union, and Providence Teachers Credit Union. NSB officially closed the acquisition agreement on April 21, 1992 (Prosky 2018). Most depositors in the institutions acquired by Northeast Savings were repaid in full, in cash, while some received 90% cash and a debenture for the remaining 10% (see Key Design Decision No. 11, Exit Strategy) (Downing 1993b; Downing 1995).
Blackstone Valley Loan and Investment entered voluntary self-liquidation, with DEPCO available to purchase depositors’ claims on the same schedule as it would for institutions it acquired under the DEPCO Act. Chariho-Exeter Credit Union was acquired by First Bank and Trust in 1992 with DEPCO assistance; its depositors, excluding officers and directors, received new deposits in First Bank and Trust (DEPCO 1993).
After intense lobbying by Rhode Island’s governor and congressional delegation, Congress directed the US Treasury to guarantee up to $180 million in debt issued by DEPCO or the state of Rhode Island under a provision in the Federal Deposit Insurance Corporation Improvement Act, a major financial regulatory law signed by President George H.W. Bush on December 19, 1991, which allowed for a loan to Rhode Island from the federal government (Prosky 2018; US House 1991). The state would pay an annual fee of one-half of 1% of the outstanding loan principal. It took several more months for this loan to finalize, but on June 26, 1992, DEPCO issued a $125 million loan backed by the Treasury (Prosky 2018). The bond was a senior secured general obligation bond collateralized by a lien on all assets, rights, and interests of DEPCO, and by excess state sales tax receipts. The federal guarantee enabled the state to borrow at a significantly lower interest rate than it otherwise could—the 91-day US Treasury bill rate plus 0.125% (DEPCO 1994). Sundlun later said the federal guarantee had saved the state $4.5 million in interest costs (Kostrzewa 1993).
In September 1991, DEPCO provided a capital injection to PierBank in order to support its reopening. DEPCO injected $500,000, purchasing 100,000 common shares at $5 per share. This gave DEPCO a 10% ownership stake in PierBank and qualified the bank for federal deposit insurance pending FDIC approval. The deal stipulated that existing PierBank shareholders would gradually purchase DEPCO’s equity stake over the course of three years. Reporting on the deal stated that the longer shareholders waited to buy DEPCO’s equity stake, the more they would have to pay (Downing 1991j).
Legal Authority1
Section 19-11-9 of Rhode Island’s General Laws required all deposit-taking institutions in the state to have deposit insurance. Due to the fact that RISDIC had requested a state-appointed conservator, given its lack of resources, all institutions that had previously been RISDIC-insured could no longer legally operate in Rhode Island (Sundlun 1991a).
Title 19, Chapter 18 of Rhode Island’s General Laws empowered the governor to proclaim a banking emergency if deemed necessary for the protection of depositors, creditors, or shareholders (Sundlun 1991a). This power was established in 1933 as a part of Rhode Island’s banking emergency legislation (Office of the Secretary of the State 1938). Governor Sundlun exercised this power on January 1, 1991, immediately after his inauguration, proclaiming a banking emergency in relation to the 45 RISDIC-insured institutions (Sundlun 1991a).
The governor’s declaration of a banking emergency empowered the Department of Business Regulation, which regulated state-chartered banks and credit unions, to issue binding rules and regulations for financial institutions included in the emergency declaration (Governor of Rhode Island 1991a; DBR 1992). The DBR director exercised this power in a “Special Regulations and Order” document attached to the governor’s emergency declaration on January 1. The regulations included nine rules that halted operations in the RISDIC-insured institutions, established rules for emergency withdrawals, and required the institutions to submit liquidity reports to the DBR. The purpose of these reports was to enable the creation of plans for hardship access to funds for depositors and eventual plans to access the necessary insurance for the institution to resume operations (Sundlun 1991a).
In February 1991, the Rhode Island General Assembly passed legislation creating DEPCO, which the governor signed on February 8 (Sundlun 1991e). Legal questions delayed the creation of DEPCO and its ability to issue debt. On May 28, 1991, the state Supreme Court, in an advisory opinion, finally confirmed DEPCO’s legality (Rhode Island Supreme Court 1991). The agency was ultimately empowered to take control of institutions that were not able to reopen with federal insurance and provided payments to depositors in closed institutions over time (Downing 1991a; Pulkkinen and Rosengren 1993).
Administration1
The government created DEPCO in February 1991 to take over banks that could not reopen with federal insurance and set a timetable for depositor payouts (Pulkkinen and Rosengren 1993). DEPCO was headed by former FDIC official Richard Gaskell (Hassenfeld Institute 2018).
DEPCO issued its first debt, a $150 million revenue bond, on June 6, 1991 (DEPCO n.d.). The bond was funded by dedicated revenue from the state sales tax, representing one-half of 1%, as well as other revenue earned on investments of DEPCO’s Reserve Fund (DEPCO 1991). DEPCO ultimately issued $637.5 million in bonds as of June 30, 1992 (DEPCO 1993).
Financial institutions that entered receivership had court-appointed receivers and operated under control and supervision of the state courts (Downing 1991h; Downing 1992).
Governance1
The governor chaired DEPCO’s board and appointed the four other members of the board of directors (Downing 1991a). A joint committee of General Assembly members and the Office of the Auditor General completed audits of DEPCO’s finances and operations (DEPCO 1991). The General Assembly later created a Performance Review Committee to review DEPCO’s performance (Rhode Island General Assembly 1994).
On January 17, 1991, the governor issued an executive order commissioning Vartan Gregorian, then president of Brown University, to conduct an independent investigation of the events leading up to the failure of RISDIC (Sundlun 1991c). Gregorian and his team were designated as agents of the governor, free from interference or control by any branch of government and indemnified from any civil liability claims arising from the investigation (Sundlun 1991b). Gregorian published his report, “Carved in Sand: A Report on the Collapse of the Rhode Island Share and Deposit Indemnity Corporation,” on March 14, 1991 (Gregorian 1991).
The Subcommittee on General Oversight and Investigations of the Committee on Banking, Finance and Urban Affairs within the US House of Representatives (House Finance Committee) held a hearing in April 1991 to review the causes of the Rhode Island banking and credit union crisis and discuss the state’s request for federal aid. The committee attached the full text of the Gregorian report to its hearing report for the record (US House Finance Committee 1991).
Communication1
While drafting the governor’s inauguration speech, Governor Sundlun’s communications director, David Preston, used President Franklin Roosevelt’s first fireside chat as a guide. Seeking language that projected similar optimism, Preston wrote, “I am confident that the crisis will be resolved quickly” (Preston 2015). The governor left most of the draft speech intact but replaced “I am confident” with “I hope” (Preston 2015).
Immediately after the declaration of the bank holiday, Preston said that the administration expected some institutions to open before the end of the week with federal deposit insurance, while others would not reopen as quickly. The chairman of the FDIC said that federal examiners had been visiting RISDIC-insured banks for several weeks and that the agency would insure only institutions that met its standards for financial stability (Bradsher 1991).
After healthy banks reopened on January 7, 1991, depositors in institutions that remained closed received mixed messages about the ultimate reimbursement they would receive. A Providence Journal article on Friday, January 4, describing the governor’s initial proposal for addressing the crisis, had the headline, “11 Institutions Don't Qualify for Insurance; Sundlun Vows Depositors Will Be Paid off in Full” (Starkman 1991). However, the text of the article quoted the governor saying that payouts for depositors in institutions that ultimately liquidated would be limited to the $100,000 that RISDIC had guaranteed (Starkman 1991). The article did not mention that the largest institutions had extended the guarantee to $500,000 in recent years. The following Friday, the paper reported that the governor’s staff had released the text of its proposed bill; although the bill still lacked details about how much depositors would get, the article quoted the governor’s senior counsel saying that the amount could exceed $100,000 (Downing 1991a). The amount and timing of payout were hotly debated over the ensuing weeks until the governor and legislators agreed on the DEPCO Act in early February (US House Finance Committee 1991).
During 1991, as many institutions remained closed, the administration held public meetings with disgruntled depositors in order to communicate the efforts being taken by the state to satisfy their claims. In these town hall-style sessions, the governor gave citizens the opportunity to express their displeasure directly to him, his staff, and other government officials. Sundlun advisor Whitehouse, now a US senator from Rhode Island, commends this action by the governor and considers it to be a lesson to all public officials in a crisis. In his words, “You’ve got to let them have their anger, they earned it by being screwed, and now they are entitled to yell” (Hassenfeld Institute 2018).
In his 1992 State of the State address, one year after the holiday began, Governor Sundlun noted that 35 of the 45 closed institutions had either reopened with federal deposit insurance or repaid their depositors, with the majority being paid in full. Of the remaining 10 closed institutions, six were to be merged with other operating institutions, and the administration intended to create a plan for repaying the remaining depositors before June 1992 (Sundlun 1992).
In the same address, the governor also praised reporter Neil Downing of the Providence Journal for a column called “Crisis Line.” The governor called the column a beacon of rationality for depositors and awarded the journalist with the state’s highest civilian honor, the Rhode Island Distinguished Service Star (Sundlun 1992). Crisis Line provided a forum for depositors to submit their questions, and Downing answered them directly (referring to submissions only by the individual’s initials), serving as a bridge between state authorities and concerned citizens (Downing 1991b).
DEPCO provided literature in mailed payments, which provided further information for depositors in the event of incorrect balances, change of address, and other clerical errors. In letters accompanying the September 1992 payments, the governor and the deputy director of DEPCO stated, “Today marks the end of the credit union crisis for you” (DEPCO n.d.).
Details of Holidays, Suspensions, or Gates1
Of the 45 financial institutions subject to the bank holiday, 35 were credit unions, seven were loan and investment companies, and three were bank and trust companies (Prosky 2018). The DBR established the terms of the bank holiday, which suspended all transactions for affected banks and prevented them from pursuing new business. The DBR outlined several specific suspension terms (Sundlun 1991a):
- Suspension of the payment to depositors, shareholders, and members of RISDIC insured institutions;
- Suspension of payments to creditors;
- Suspension of the acceptance of new deposits;
- Suspension of new loan issuance;
- Suspensions of selling, leasing, or otherwise transferring assets, or incurring new liabilities; and
- Suspension of debiting and ATM withdrawals for depositors.
The DBR order dictating the terms of the holiday mandated that all impacted banks submit plans for emergency access to depositor funds. In order to reopen, the DBR called for banks to submit plans “to enable such institution to continue its business and to operate . . . in a safe and prudent manner with adequate capital, reserves and deposit insurance” (Sundlun 1991a).
The emergency withdrawals permitted during the duration of the holiday (See Key Design Decision No. 8, Treatment of Depositors or Investors) required applicants to satisfy one of six acceptable reasons for request (DEPCO n.d.):
- Facing immediate foreclosure on primary residence,
- Overdue rent or facing immediate eviction,
- Non-elective medical treatment or procedure,
- Payment for medical insurance for self or family members,
- Food expenses, or
- Facing immediate termination of utility services.
Authorities included a total of 22 financial institutions that could not access federal insurance in the executive order establishing the terms for emergency withdrawals (DEPCO n.d.). Fourteen institutions remained closed at the end of February 1991, and nine were still closed at the start of January 1992 (See Key Design Decision No. 11, Exit Strategy) (English 1993).FNGreater Providence Deposit Corporation and Greater Providence Trust Company both closed and were listed in receivership in the 1992 Rhode Island Department of Business Regulation annual report (DBR 1992). They appear as a single entity called Greater Providence Deposit & Trust in the documentation concerning the acquisition by Northeast Savings Bank (see Key Design Decision No. 2, Part of a Package) (DEPCO n.d.).
Treatment of Depositors or Investors1
All depositors in DEPCO receivership were eventually paid in full with interest on debentures and guaranteed balances (Kostrzewa 2002). However, this outcome was not always clear in the early months of the bank holiday. The state’s goal was to open institutions as soon as possible with federal insurance. But deposits remained frozen in banks that could not meet the standards for federal insurance (US House Finance Committee 1991). For five and a half weeks, the governor’s staff and General Assembly negotiated the terms of the payouts to depositors in closed banks as a key element of a broad legislation addressing the banking and credit union crisis. Legislators approved and the governor signed the bill creating the Depositors Economic Protection Corporation on February 8, 1991 (Sundlun 1991e). But DEPCO’s operations were in limbo until the State Supreme Court cleared up constitutional questions on May 28, 1991 (Rhode Island Supreme Court 1991).
Governor Sundlun implemented several measures to provide options for depositors of closed financial institutions to cover expenses and fund their businesses during the banking and credit union crisis. The government permitted depositors to apply to make emergency withdrawals of up to $1,000. Acceptable expenses included food, rent, mortgage, health insurance, utilities, and other emergencies of this sort (Downing 1991c). In November 1991, the state increased the maximum emergency withdrawal to $1,500 (Downing 1991k).
An early operational issue was how to handle Social Security checks that could no longer be directly deposited to the accounts of their beneficiaries. Representatives from the US Treasury, the Social Security Administration, and the Rhode Island Division of Banking decided that Citizens Bank would be responsible for such direct deposits sent to closed RISDIC institutions (Syron 1991). Staff from the Federal Reserve Bank of Boston helped to coordinate these efforts, and on January 5, 1991, hundreds of customers entered Citizens Bank branches to collect payments formerly destined for closed RISDIC institutions (Espinoza 1991; Syron 1991).
Depositors in financial institutions acquired by DEPCO received payments over time. The government required DEPCO to provide the first payment to depositors within 45 days of the institution’s entering DEPCO receivership (Downing 1991f). Depositors received a payout every six months in the three years after their financial institution entered receivership. Depositors with accounts of $100,000 or less were paid in full in cash (see Figure 2 for the scheduled payments for these depositors), and depositors with accounts of greater than $100,000 were initially subject to a graduated payment ladder (see Figure 3), although all haircuts were eventually paid back (for details, see Key Design Decision No. 11, Exit Strategy) (Downing 1991f; English 1993; Kostrzewa 2002).
Source: Downing 1991f.
See Appendix: Timelines of Payouts and Mergers by Institution for payouts broken down by specific institution. Most banks in DEPCO receivership roughly followed the DEPCO payout plan, providing payments in June 1991, October 1991, April 1991, November 1991, February 1992, June 1992, and September 1992.FNThe government also authorized interim distributions for depositors in nine institutions by executive order (see Appendix: Timelines of Payouts and Mergers by Institution ) (DEPCO n.d.). DEPCO paid off “guaranteed balances” in October 1993 (See Key Design Decision No. 10, Other Conditions) (DEPCO n.d.).
In May 1994, DEPCO offered to purchase debentures from the depositors who had been given debentures as part of the NSB acquisition. The purchase offer was entirely voluntary but was offered with the caveat that the DEPCO purchase offered 5% interest, while the debenture promised a 9% yield if held until NSB payment. DEPCO repeated this offer in July and August of 1994 (DEPCO n.d.). Those who did not take the offer received payment from Chemical Bank in November 1995 (Downing 1995).
Verification of Solvency1
RISDIC-insured financial institutions had already applied for federal deposit insurance in the months leading up to the bank holiday, from the NCUA for credit unions and the FDIC for banks. The NCUA received 33 insurance applications in November 1990, as runs were accelerating, and conducted a five-week examination of all applicants. NCUA officials completed this examination on December 21, deeming 22 credit unions to be eligible for federal insurance (Prosky 2018).
The FDIC conducted a parallel process for banks. In November 1990, five Rhode Island banks submitted applications for federal insurance, but all five were denied by the FDIC board of directors on January 3 1991 (FDIC 1991; Prosky 2018). According to testimony of Paul Fritts of the FDIC in April 1991, “In all five cases the factors of financial history and condition, adequacy of capital, and risk presented to the insurance fund were resolved unfavorably” (US House Finance Committee 1991, 123).
Following the governor’s declaration of a banking emergency, the DBR mandated that all impacted institutions submit liquidity reports and plans through which they could reopen their business with adequate capital, reserves, and deposit insurance (Sundlun 1991a). The 22 credit unions that had been approved for NCUA insurance reopened on January 7, 1991 (Prosky 2018).
The remaining financial institutions that had been rejected by the NCUA or FDIC continued to seek federal deposit insurance. Rhode Island’s congressional delegation supported efforts by state officials and worked closely with FDIC authorities (Prosky 2018).FNOn January 23, 1991, Senator John Chafee requested expedited FDIC evaluations for the closed institutions involved in Sundlun’s Old Stone Plan (see Key Design Decision No. 2, Part of a Package) (Prosky 2018). The FDIC chairman declined this request, stating that the examination would take three to four weeks to avoid the unnecessary risks associated with merging unhealthy institutions with a healthy bank that was federally insured (Prosky 2018).
Other Conditions1
Despite the bank holiday, customers were still required to make payments on loans from RISDIC financial institutions (Downing 1991b). In March 1991, the governor announced a rule allowing frozen deposit funds to be used to make loan payments if both the loan and the deposit were with the same financial institution. This rule applied to depositors in the 13 financial institutions that were still closed at the time, none of which had been acquired for liquidation by DEPCO (Downing 1991g).
For the June 1992 DEPCO payment to depositors, depositors with a remaining balance in excess of $4,000 received 90% in cash and 10% in “guaranteed balances” (DEPCO n.d.). These guaranteed balances were functionally an IOU commitment from DEPCO that earned simple 5% interest. DEPCO paid off most of these guaranteed balances in September 1992, with the remainder being paid off in October 1993 (DEPCO n.d.; Downing 1993a).
Exit Strategy1
Authorities sought various avenues to provide depositors of the 45 RISDIC banks quick access to some or all of their funds. As Governor Sundlun articulated at a congressional hearing;
In our RISDIC crisis we have said to the closed institutions, “Get yourself federally insured. If you can’t do that, find somebody to buy you who has Federal insurance. If you can’t do that, find somebody to merge with who has Federal insurance. If you can’t do that, find some people to invest some new capital in your company. If you can’t do that, then you better look in the mirror and recognize you have a problem. And you better run, not walk, into DEPCO . . . because the DEPCO will take care of the deposits.” (US House Finance Committee 1991, 10–11)
By the end of January, 26 financial institutions had reopened with federal deposit insurance (DBR 1991; US House Finance Committee 1991). However, many of the institutions that remained closed were the largest, meaning that 350,000 accounts representing $1.2 billion were still frozen (Prosky 2018).
Several of the remaining institutions were able to merge or be acquired in order to access federal insurance. Still others liquidated and provided payouts to their depositors (Prosky 2018). Six institutions were taken over by DEPCO, with the intention of facilitating a sale to a federally insured bank (see Key Design Decision No. 2, Part of a Package) (Prosky 2018; US House Finance Committee 1991). The state created a payment ladder for depositors. DEPCO said it would pay 100% up to $100,000, and 10% less for each $100,000 bracket, up to $500,000 (Downing 1991i). For depositors not immediately paid in full, the remainder was compensated in the form of guaranteed balances from DEPCO. Figure 3 shows the payment ladder.
Sources: Downing 1991i; English 1993; Kostrzewa 2002.
Most depositors received repayment from DEPCO within six to 18 months (Downing 1991f; Hassenfeld Institute 2018; Prosky 2018). The haircuts articulated in the payment ladder were eventually repaid, as DEPCO reimbursed all $1.2 billion in deposits with interest on guaranteed balances (Kostrzewa 2002). The holders of IOUs received cash payment well after smaller depositors had received all of their funds. DEPCO was not legally required to pay off IOUs until 2012, but it repaid most IOU holders in October 1993 (Downing 1993a; Kostrzewa 2002).FNAn October 1993 article reports 438 IOU holders who did not receive checks because the individuals had not responded to DEPCO’s request for identification (Downing 1993a). Debenture holders in the four financial institutions that were part of the NSB deal received their final cash payments in November 1995 (Downing 1995).
The 1991 DBR annual report stated that as of June 30, 1991, 16 institutions remained closed, two had self-liquidated, one had merged with another institution, and 26 had reopened with federal deposit insurance (DBR 1991). The 1992 DBR annual report stated that as of March 31, 1992, 16 financial institutions remained closed (DBR 1992). The DBR listed 14 of these institutions as “In Receivership” and the other two institutions as “Inactive” (DBR 1992). By publication of the 1993 DBR annual report, all banks and trust companies were listed as operating without restrictions (DBR 1993).
DEPCO incurred a $697 million debt to provide payments to depositors. It repaid its debt in full in August 2000, 20 years ahead of schedule. DEPCO officially dissolved in December 2002. The net cost of the intervention to Rhode Island taxpayers totaled $290 million (Kostrzewa 2002).
Regulatory Changes1
The RISDIC crisis became a national issue, prompting shifts away from private deposit insurance throughout the country as many states imposed deadlines for obtaining federal deposit insurance (English 1993; GAO 2003). In the aftermath of the RISDIC crisis, nearly half of all privately insured credit unions transitioned to federal deposit insurance. The 1991 Federal Deposit Insurance Corporation Improvement Act (FDICIA) created comprehensive changes for deposit insurance at the federal level (GAO 2003). Of the nine private deposit insurers operating in the United States before the crisis, five had members convert to federal insurance in the aftermath. These moves reflected a general belief that a national deposit insurance system was better equipped to handle issues of reserve adequacy and risk dispersion given its access to federal government support (Pulkkinen and Rosengren 1993).
On June 20, 1995, then-Governor Lincoln Almond signed a law requiring all depository institutions in Rhode Island to maintain federal deposit insurance (Prosky 2018).
Key Program Documents
(DEPCO n.d.) Depositors Economic Protection Corporation (DEPCO). n.d. “Depositor Payout Chronology.” Rhode Island State Archives.
Archival folder providing an overview of payouts provided to impacted depositors during the credit union crisis.
Key Program Documents
(Sundlun 1991a) Sundlun, Bruce. 1991a. “Proclamation and Executive Order Implementation.” Executive Order No. 91–2, January 1, 1991.
Executive order and special regulations dictating the terms of the 1991 Rhode Island bank holiday.
Key Program Documents
(Rhode Island General Assembly 1994) Rhode Island General Assembly. 1994. An Act Relating to State Affairs and Government - Rhode Island Depositor’s Economic Protection Corporation. February 8, 1994.
Act passed by the Rhode Island General Assembly that created a committee to review the performance of DEPCO.
(Rhode Island Supreme Court 1991) Rhode Island Supreme Court. 1991. In Re Advisory Opinion to the Governor (Depco). June 24, 1991.
Rhode Island Supreme Court decision confirming legality of DEPCO.
(Sundlun 1991b) Sundlun, Bruce. 1991b. “Indemnification of President Gregorian.” Executive Order No. 91-6, January 17, 1991.
Executive order designating the president of Brown University as an agent of the RI governor’s office for the purpose of investigating the failure of RISDIC.
(Sundlun 1991c) Sundlun, Bruce. 1991c. “Appointment of Special Commission and Special Counsel to Investigate the Collapse of RISDIC Insured Institutions.” Executive Order No. 91–13, February 14, 1991.
Executive order establishing special investigators to lead an inquiry into the failure of RISDIC.
Key Program Documents
(Bradsher 1991) Bradsher, Keith. 1991. “45 Credit Unions and Banks Shut by Rhode Island.” New York Times, January 2, 1991.
News article reporting the statewide bank holiday declared in Rhode Island.
(Downing 1991a) Downing, Neil. 1991a. “Proposed Measure Gives DEPCO Wide Powers, Much Independence.” Providence Journal, January 11, 1991.
News article reporting the proposed creation of DEPCO for satisfaction of depositor claims.
(Downing 1991b) Downing, Neil. 1991b. “Payments Must Still Be Made on a Loan from Closed Institutions.” Providence Journal, January 16, 1991.
Crisis Line article answering questions about loan payments.
(Downing 1991c) Downing, Neil. 1991c. “Depositors May Apply to State for Emergency Withdrawals to $1,000.” Providence Journal, January 18, 1991.
News article reporting on options for depositors in closed banks facing emergency expenses.
(Downing 1991d) Downing, Neil. 1991d. “Nine Closed Institutions to Begin Payouts: Amounts Vary; Checks to Be Mailed.” Providence Journal, January 29, 1991.
News article reporting on the beginning of depositor payouts at nine closed banks.
(Downing 1991e) Downing, Neil. 1991e. “Depositors Won’t Get Scrip as IOUs.” Providence Journal, February 5, 1991.
News article announcing the abandonment of the idea of issuing scrip during the credit crisis.
(Downing 1991f) Downing, Neil. 1991f. “Small Depositors May See Light at End of Tunnel under Revised Plan.” Providence Journal, February 7, 1991.
News article announcing tentative agreement on the bill to create DEPCO.
(Downing 1991g) Downing, Neil. 1991g. “A Boon for Borrowers: New Rules Permit Borrowers to Use Frozen Funds for Loans.” Providence Journal, March 17, 1991.
News article announcing new rules allowing loans to be paid off with frozen deposits.
(Downing 1991h) Downing, Neil. 1991h. “Credit Unions, Receivership and DEPCO.” Providence Journal, May 5, 1991.
News article providing an explanation of the payout process for banks in receivership with DEPCO.
(Downing 1991i) Downing, Neil. 1991i. “Haircuts Will Apply in Larger Payouts.” Providence Journal, August 15, 1991.
News article answering questions concerning haircuts on payouts for larger deposits.
(Downing 1991j) Downing, Neil. 1991j. “DEPCO Moves to Help PierBank Reopen.” Providence Journal, September 27, 1991.
News article announcing a DEPCO capital injection for PierBank.
(Downing 1991k) Downing, Neil. 1991k. “State Plans to Ease Hardship Withdrawals from Frozen Accounts.” Providence Journal, November 19, 1991.
News article reporting an expansion on the amount of hardship withdrawals.
(Downing 1992) Downing, Neil. 1992. “Next Payout Planned Feb.14 to ‘Final Four’ Depositors.” Providence Journal, January 28, 1992.
News article detailing the next payout for depositors in the final four banks in receivership.
(Downing 1993a) Downing, Neil. 1993a. “DEPCO Bonanza Is at Hand for 16,000 Depositors.” Providence Journal, October 12, 1993.
News article announcing DEPCO payments for holders of IOUs.
(Downing 1993b) Downing, Neil. 1993b. “Last Week’s Payout Closed Big Chapter in DEPCO Annals.” Providence Journal, October 19, 1993.
News article announcing the final payout for depositors in DEPCO banks.
(Downing 1995) Downing, Neil. 1995. “A Long, Painful Chapter in R.I. Banking Is over: The Banking Crisis That Began Nearly Five Years Ago Officially Ends, as the Final Payout Checks Are Mailed.” Providence Journal, November 2, 1995.
News article reporting the final payments to holders of IOUs in Northeast Savings.
(Espinoza 1991) Espinoza, Suzanne. 1991. “Hundreds Descend on Citizens to Collect Their Federal Payments.” Providence Journal, January 6, 1991.
News article on depositors in closed RISDIC institutions collecting federal payments from Citizens Bank.
(Farzan 2023) Farzan, Antonia Noori. 2023. “Before Silicon Valley, Rhode Island Had Its Own Bank Crisis. Here’s How It Changed the State.” New York Times, March 16, 2023.
News article recalling the Rhode Island banking crisis.
(Garland 1990) Garland, Russell. 1990. “Sundlun Wins a Daunting Mandate; the Governor-Elect Faces Economic Ills That Contributed to DiPrete’s Downfall.” Providence Journal, November 7, 1990.
News article describing Governor Sundlun’s victory over former Governor DiPrete.
(Kostrzewa 1990a) Kostrzewa, John. 1990a. “Are Deposits Safe? Yes, so Far - but Recession Losses Strain the System.” Providence Journal, October 28, 1990. NewsBank.
News article reporting stresses on banks and credit unions in New England.
(Kostrzewa 1990b) Kostrzewa, John. 1990b. “Grand Jury Begins Probe of Heritage; $1.2 Million in Deposits Withdrawn; Atty. Gen. Reports Whereabouts of President Unknown.” Providence Journal, November 14, 1990.
News article on Heritage Loan and Investment Co. bank runs.
(Kostrzewa 1990c) Kostrzewa, John. 1990c. “Credit Unions Reconsider Insurer.” Providence Journal, November 16, 1990.
News article on credit unions’ applications to the NCUA.
(Kostrzewa 1990d) Kostrzewa, John. 1990d. “Bank Loss Rises; Insurer Forced to Bolster Fund.” Providence Journal, November 22, 1990.
News article on the updated losses at Heritage Loan and Investment Co.
(Kostrzewa 1991) Kostrzewa, John. 1991. “Credit Union Crisis: DEPCO Will Require $200 Million More, Banking Expert Says.” Providence Journal, February 10, 1991.
News article describing Bert Ely’s analysis of DEPCO’s payout plan.
(Kostrzewa 1993) Kostrzewa, John. 1993. “DEPCO Repays U.S. in a Big Way: A $125 Million Check Marked the First Retirement of a Chunk of Debt Taken on by the Bailout Agency.” Providence Journal, October 9, 1993.
News article on Rhode Island government’s payment for a $125 million loan backed by the federal government.
(Kostrzewa 2002) Kostrzewa, John. 2002. “The Credit Union Calamity – An Imperfect Agency Mops up the Mess.” Providence Journal, December 20, 2002.
News article reporting the closure of DEPCO.
(Phipps 1991) Phipps, Peter. 1991. “Credit Union Crisis Business Viewpoint: Guess Who’s the Fall Guy in Bailout Game?” Providence Journal, February 10, 1991.
News article on the decision to use sales tax to pay depositors during the Rhode Island credit union crisis.
(Preston 2015) Preston, David. 2015. “The Last Days of RISDIC.” New Harbor Group Blog, December 11, 2015.
Blog post by then-Governor Sundlun’s communications director about the demise of RISDIC.
(Starkman 1991) Starkman, Dean. 1991. “11 Institutions Don’t Qualify for Insurance; Sundlun Vows Depositors Will Be Paid off in Full.” Providence Journal, January 4, 1991.
Article describing the eligibility of credit unions for federal insurance in the aftermath of RISDIC’s failure.
(Stitt and Black 1991) Stitt, Robert S., and Charles O. Black. 1991. “Financial Crisis Regarding Credit Unions and Related Financial Institutions Not Covered by Federal Depositors’ Insurance.” Providence Journal, January 4, 1991.
Memo sent to then-Attorney General Arlene Violet in 1985 predicting the troubles that would befall the Rhode Island banking sector, published more than five years later in the midst of the Rhode Island banking crisis.
Key Program Documents
(FDIC 1991) Federal Deposit Insurance Corporation (FDIC). 1991. “FDIC Denies Applications for Federal Deposit Insurance from Five Privately Insured Rhode Island Banks.” Press release, January 4, 1991.
Press release announcing the FDIC board of directors’ denial for deposit insurance for five RISDIC-insured banks.
(Sundlun 1992) Sundlun, Bruce. 1992. State of the State Address 1992. Video, January 21, 1992.
Governor’s “State of the State” address for the year 1992.
(US House 1991) US House of Representatives (US House). 1991. “Congressional Record–House of Representatives.” 102nd Cong., 1st sess., October 28, 1991.
Congressional Record for the House session on October 28, 1991.
Key Program Documents
(Bumgardner 1991) Bumgardner, Layne L. 1991. “Statement of Layne L. Bumgardner, Region I Director, National Credit Union Administration, Albany, NY.” In Closure of 45 Privately Insured Financial Institutions in Rhode Island, 31–34. 102nd, 1st Sess.
Testimony before the Committee on Banking, Finance, and Urban Affairs, US House of Representatives.
(DBR 1991) Department of Business Regulation (DBR). 1991. Annual Report 1990.
Annual report discussing the health of banks in Rhode Island as of December 31, 1990.
(DBR 1992) Department of Business Regulation (DBR). 1992. Annual Report 1991.
Annual report on the state of Rhode Island banks as of December 31, 1991.
(DBR 1993) Department of Business Regulation (DBR). 1993. Annual Report 1992.
Annual report on the state of banks in Rhode Island in 1992.
(DEPCO 1991) Depositors Economic Protection Corporation (DEPCO). 1991. “Audit Report.” October 29, 1991.
Audit report of the finances of DEPCO from inception through the end of FY1991.
(DEPCO 1993) Depositors Economic Protection Corporation (DEPCO). 1993. Financial Statements 1992.
DEPCO financial statements for the year ended June 30, 1992.
(DEPCO 1994) Depositors Economic Protection Corporation (DEPCO). 1994. Financial Statements 1993.
DEPCO financial statements for the year ended June 30, 1993.
(Gregorian 1991) Gregorian, Vartan. 1991. “Carved in Sand: A Report on the Collapse of the Rhode Island Share and Deposit Indemnity Corporation.” In Closure of 45 Privately Insured Financial Institutions in Rhode Island (April): 345–529. 102nd, 1st Sess.
Report by the president of Brown University on the collapse of RISDIC.
(Hassenfeld Institute 2018) Hassenfeld Institute for Public Leadership at Bryant University. (Hassenfeld Institute). 2018. Crisis of Confidence: The Rhode Island Credit Union Collapse. Video, November 12, 2018.
Documentary providing an overview of the RISDIC crisis and its aftermath.
(Reed 1991) Reed, John F. 1991. “Opening Remarks of John F. Reed.” In Closure of 45 Privately Insured Financial Institutions in Rhode Island, (April): 90–94. 102nd, 1st Sess.
Opening remarks of John Reed before the House Banking Subcommittee on General Oversight and Investigation.
(Sundlun 1991d) Sundlun, Bruce. 1991d. “Statement of Governor Bruce Sundlun.” In Closure of 45 Privately Insured Financial Institutions in Rhode Island, 9–26. 102nd, 1st Sess.
Testimony of Governor Sundlun before the Committee on Banking, Finance, and Urban Affair.
(Sundlun 2001) Sundlun, Bruce. 2001. “Commentary - Cleaning up the Credit-Union Crisis.” Providence Journal, November 18, 2001.
Former Governor Sundlun’s commentary on the RISDIC credit union crisis.
(Syron 1991) Syron, Richard F. 1991. “Statement of Richard F. Syron, President of the Federal Reserve Bank of Boston.” In Closure of 45 Privately Insured Financial Institutions in Rhode Island, 27–31; 97–111. 102nd, 1st Sess.
Testimony before the Committee on Banking, Finance, and Urban Affairs, US House of Representatives, April 17, 1991.
(US House Finance Committee 1991) Committee on Banking, Finance and Urban Affairs of the US House of Representatives (US House Finance Committee). 1991. “Closure of 45 Privately Insured Financial Institutions in Rhode Island.” April 17, 1991.
Congressional hearing concerning the Rhode Island bank holiday.
Key Program Documents
(Chen et al. 2020) Chen, Qian, Christoffer Koch, Padma Sharma, and Gary Richardson. 2020. “Payments Crises and Consequences.” National Bureau of Economic Research Working Paper No. 27733, August 2020.
Article discussing the economic effects of payment suspensions, using Rhode Island among other case studies.
(English 1993) English, William B. 1993. “The Decline of Private Deposit Insurance in the United States.” Carnegie-Rochester Conference Series on Public Policy 38 (June): 57–128.
Article discussing the problems that led to the rejection of private deposit insurance.
(Lawson and Engbith 2021) Lawson, Aidan, and Lily S. Engbith. 2021. “US Resolution Trust Corporation.” Journal of Financial Crises 3, no. 2: 129–75.
YPFS case study concerning the creation of the Resolution Trust Corporation in response to the savings and loan crisis.
(Office of the Secretary of the State 1938) Office of the Secretary of the State. 1938. Rhode Island General Laws of 1938 (Annotated). Rhode Island: Thompson & Thompson, Inc.
General laws of Rhode Island as of 1938, published with annotations.
(Prosky 2018) Prosky, Melissa S. 2018. “Crisis of Confidence: Responding to the Rhode Island Credit Union Debacle.” Bryant University Hassenfeld Institute for Public Leadership, May 2018.
Case study detailing the RISDIC crisis and the government’s response.
(Pulkkinen and Rosengren 1993) Pulkkinen, Thomas E., and Eric S. Rosengren. 1993. “Lessons from the Rhode Island Banking Crisis.” New England Economic Review (May/June): 3–12.
Article discussing the Rhode Island banking crisis and lessons to take away from it.
(Seidman 1993) Seidman, L. William. 1993. Full Faith and Credit: The Great S & L Debacle and Other Washington Sagas. New York: Times Books.
Memoir by former FDIC Chairman William Seidman on the S & L cleanup and other banking crisis interventions.
(Sundlun 1991e) Sundlun, Bruce. 1991e. “Report and Chronology with Exhibits of Governor Bruce Sundlun.” In Closure of 45 Privately Insured Financial Institutions in Rhode Island, 202–312.
Then-Governor Sundlun’s presentation of the chronology of the crisis during a hearing before the House Committee on Banking, Finance, and Urban Affairs.
(Todd 1994) Todd, Walker F. 1994. “Similarities and Dissimilarities in the Collapses of Three State-Chartered Private Deposit Insurance Funds.” Working Paper No. 9411, Federal Reserve Bank of Cleveland, October 1994.
Working paper discussing three instances of state deposit insurance fund failures.
(West 2014) West, H. Phillip Jr. 2014. “Chapter Five: Collapse of Credit (1991).” In Secrets & Scandals: Reforming Rhode Island, 1986-2006. Providence: Rhode Island Publications Society.
Book chapter detailing the collapse of RISDIC in 1990–1991.
(Wiggins et al., forthcoming) Wiggins, Rosalind Z., Owen Heaphy, Anmol Makhija, Stella Shaefer-Brown, Greg Feldberg, and Andrew Metrick. Forthcoming. “Survey of Bank Holidays and Fund Suspensions.” Journal of Financial Crises.
Survey of YPFS case studies examining bank holidays and mutual fund suspensions.
Taxonomy
Intervention Categories:
- Bank Holidays & Fund Suspensions
Countries and Regions:
- United States