Magazine article American Banker

Maryland Governor Tightens State Reins on S&L Operations

Magazine article American Banker

Maryland Governor Tightens State Reins on S&L Operations

Article excerpt

ANNAPOLIS -- Using the emergency powers granted to him in May by the General Assembly, Gov. Harry R. Hughes on Tuesday signed an executive order tightening state regulations on the kind of unsafe practices that led to Maryland's savings and loan crisis.

The order strengthens conflict-of-interest rules, limits so-called "insider" transactions, and generally closes loopholes in current laws governing the state-chartered S&Ls.

The governor said the new rules are needed "to protect the welfare of depositors and to halt the practices which have impaired the liquidity or solvency of certain savings and loan associations."

The changes in the rules were recommended by Wilbur D. Preston, a special counsel who was appointed to look into the origins of the state's S&L crisis and recommend solutions to prevent a recurrence.

the new rules prohibit officers and directors of S&Ls from helping themselves to unsecured, interest-free loans through overdrafts of checking accounts and from collecting unjustified fees.

They also give the state stronger authority to place an association into a state-controlled receivership in the event of gross violations of state rules.

Insider loans and large fees were commonplace at Old Court Savings and Loan, whose troubles precipitated a run on the state's 102-member privately insured thrift system last May.

The Hughes administration is engaged in a thorough examination of all the laws and regulations governing state-chartered S&Ls and is planning to propose an overhaul of the system when the General Assembly convenes in January. Mr. Preston's recommendations are being implemented on an emergency basis.

Legislative leaders applauded the tighter rules as an interim measure. They will decide in January whether they must enact these rules into law.

House Speaker Benjamin L. …

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