It was a crisis the likes of which this state had never seen.
Forty-five credit unions and banks closed by the state when their insurer collapsed, many never to reopen. Millions of dollars frozen and thousands of Rhode Islanders denied access to their money until the state could develop a program to get depositors’ money returned.
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By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
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The law suits are still being played out, as witnessed last week in a $15.5 million settlement by Fleet Financial Group with the Depositors Economic Protection Corporation.
It was a crisis that involved every Rhode Islander, if not directly, then through a friend or relative who found his or her life’s savings inaccessible. It was a time of anger, of a loss of trust in those public officials elected to make sure that such things should never happen.
There were reports of some previous knowledge, of a six-year-old report (the famous Stitt report) that warned of potential problems but was ignored, and of a banker (Joe Mollicone), who disappeared and eventually surfaced in, of all places, Salt Lake City. He remains in prison, guilty of embezzling $12 million from Heritage Loan and Investment Co.
The banking or credit union crisis in Rhode Island could not have come at a worse time, just as the economy was slowing. It added to an already worsening financial situation.
At this 10th anniversary of the banking crisis many are quick to remember. None of the memories are good, but rather recollections of days filled with bitterness and anger and a loss of public trust.
But Rhode Island was not the only state that experienced a crisis among its financial institutions. Other states had as well, and even the likes of Tom Peters suggested that Rhode Islanders got their money back far quicker than their counterparts in states like Ohio and Texas.
Still, the fact that folks in Ohio were still waiting for their money didn’t ease the pain for Rhode Islanders.
Lessons learned, we hope.
The credit unions got federal insurance, assuring no future collapses. Some credit unions closed, some were bought or merged into stronger institutions.
But the loss of public trust might have been the most damaging, the most lasting, leaving us with an uneasy feeling that it can happen again.
It can happen if our oversight is not diligent enough. Or it could happen in the insurance industry, or any other area where regulation can become lax.
This is a particularly vulnerable time. In mid-1990 our economy was slowing down, just as it is today. Revenues were off, and concerns were being raised about a slowing economy and slowing revenue stream to the state. Then the credit union crisis hit, and coupled with a slowing econ-omy it became a far worse situation than we could have imagined.
This may be a time to remember, but it is also a time for our officials and our watchdog groups to take a hard look at the regulatory processes we have in place to prevent another, similar crisis, whether in the financial services industry, insurance or health care.
