High Rollers: Inside the Savings and Loan Debacle

When the prime rate went over 20 percent in the summer of 1981, American newspapers carried stories about possible failures of S&Ls and mutual savings banks for the first time since the 1930s.

Despite the advance publicity, the first major failure, the demise of the Greenwich Savings Bank, a New York City mutual^* that had over $2 billion in assets and had been in business for almost 150 years, shocked the public. The FDIC had decided that the Greenwich's net worth was too low to allow it to continue in business so, after obtaining the consent of Muriel ("Mickie") Siebert, the Superintendent of Banks of the State of New York, the FDIC invited several healthy banks to bid for the Greenwich. Under the law, the FDIC couldn't take Greenwich over without the Superintendent calling them in. But Mickie Siebert's perspective was "He who has the gold makes the rules," and the FDIC had the gold, so she went along despite her public preference for nursing sick banks back to health. Before the FDIC was ready to sell the Greenwich, however, a reporter came across draft bid documents that had been left in a conference room. The next day the New York papers reported that the Greenwich was about to fail. Lines formed in front of its branches, and the six o'clock news featured the first New York bank run since the 1930s.

The FDIC and the Superintendent had been bickering about the details of how the Greenwich should be handled, but the run convinced them to set aside their differences and act quickly. Siebert told the Greenwich board of

-13-