Bank Crisis Catches Rhode Island Off Guard

A SENSE of calm pervades this quaint village on Rhode Island's Narragansett Bay as people try to cope with the consequences of the state's banking crisis. When Gov. Bruce Sundlun (D) closed 45 privately insured banks and credits unions Jan. 1 after the insurer declared insolvency, Wickford took a direct hit. Many people in town did their banking at the Davisville Credit Union, one of the closed institutions. Depositors were suddenly caught short of cash and unable to get to their funds.

While 22 credit unions reopened Monday after obtaining federal insurance from the National Credit Union Administration, Davisville could not. It has been found ineligible for federal insurance and may not reopen at all. Its Wickford office stands forlornly closed on the main street of town, its blue wooden fa,cade smeared with egg.

In a caf'e down the street, Laura Smeraldi and Karen Gobin, both housewives, swap stories on how the crisis has affected them. ``I had a checking and a savings account in Davisville. Everything was there,'' Mrs. Smeraldi says. But she is getting along better than most of her friends, she says. Her husband, a commercial fisherman, got an advance from his wholesaler on his next fishing trip. With that money, the couple opened a new account in one of the federally insured banks in town.

Checks are bouncing

``My problem now is the bills I had out that should have been covered by checks I wrote,'' Mrs. Smeraldi says. ``People are calling and asking me to cover them.... Basically, I'm just telling everyone to wait like I have to. I can't pay everyone for December and then pay them for this month, too.''

Mrs. Gobin didn't have any money in Davisville, but she says her local church and the parent-teacher organization at the local elementary school kept all their funds there.

In a jewelry store around the corner, clerk Ann Marie Folcarelli worries about the effects of the crisis on the business community. Many local businesses kept accounts in Davisville. Her husband is unemployed and she is looking for another part-time job, she says. ``[Managers] who are worried about how they are going to pay their taxes will not be hiring.''

Shirley St. Germain works in the dress shop across the street. She sent out $2,500 in checks to pay bills the Friday before New Year's Day. ``They never cleared and I can't touch anything,'' she says. She has gotten by on her government pension and Social Security checks, which she cashed at another bank.

She realized the gravity of the situation when she left work on Jan. 2 and decided to stop at the market on the way home. ``I had 24 cents and a check which was no good,'' Ms. St. Germain says.

``There doesn't seem to be a lot of panic,'' St. Germain observes. ``But an underlying anger certainly is there.... It is keeping people awake nights.'' Reports of depositor meetings around the state with credit union officials and legislators indicate that tempers are flaring. But St. Germain, like several others, says she is very pleased with Governor Sundlun's handling of the situation.

Small businesses pinched

Joseph Dub'e owns the Wickford Gourmet Shop, which sells fancy cheeses, imported foods, and folk art. He deposited all the proceeds from what he says was a ``very good Christmas season'' in Davisville. Mr. Dub'e says he had to pay his employees out of his Wednesday and Thursday receipts. He can do that again this week, he says, but that still doesn't take care of his suppliers.

While Dub'e also gives the governor good marks for helping individuals caught in the crisis, ``what's been tardy has been his response to the business community.''

``There are two situations here,'' he says. ``The wage earner is hurt and we must take care of him. There's been an outpouring of support [from local banks and groceries]. That's admirable. Now on a bigger scale, we need something like that for the small businessman.''

``We paid bills from our suppliers with checks now coming back to us,'' Dub'e says. ``They are worthless pieces of paper at this point.''

Things could have been a lot worse for the workers at the Quonset Point Facility of General Dynamics Electric Boat Division, across the bay from Wickford. Dick Boudreau, manager of communications, says that of the company's 4,300 employees, 1,800 hourly workers and 400 salaried personnel had part of their paychecks automatically deposited in Davisville.

When the company learned of the situation, Mr. Boudreau says, it canceled the direct deposits and immediately reissued checks to those employees. But many still have funds frozen in Davisville, including Boudreau himself.

Some light seen

``The previous Friday, people did have checks deposited. My money is tied up there. Fortunately, we didn't deposit my wife's check,'' he says. But another couple deposited both their checks and ended up with $3 in cash. But ``people here will survive,'' Boudreau says. ``There is light at the end of the tunnel.''

The light Boudreau refers to includes the governor's plan, announced Sunday, to make available to depositors most of the $1.3 billion frozen in closed institutions. Under the proposal, nine banks would lend the state $150 million. On Jan. 21, depositors in the closed institutions would be able to withdraw half of the money in their accounts - up to $2,500 for savings accounts, and $10,000 from checking accounts. Sundlun said this would help 70 percent of the depositors.

The state would write scrips, a form of IOU, of up to $100,000 for the remaining deposits, and pay them off over four years. A new state agency, the Depositors Economic Protection Corporation, or DEPCO, would take control of the assets of closed institutions and use them to pay off the $150 million loan. Any remaining funds required to pay depositors would come from state general revenues, the governor said. Five of the closed banks and 11 credit unions have agreed to the plan. The governor's staff has also arranged for people faced with emergencies to withdraw $1,000 from the accounts.

Private businesses are helping as well. Several banks have extended hours and were open last Saturday to serve people needing to open new accounts or get emergency loans.

Two of Rhode Island's largest grocery chains, Almac's and Stop & Shop, announced they would accept checks written on the closed institutions up to the amount of purchase for customers with check-cashing cards. Such moves appear to have generated a lot of goodwill. ``It's pretty decent of them,'' Laura Smeraldi remarks.

The crisis had its origins in the disappearance of Joseph Mollicone Jr. on Nov. 8, 1990. Mr. Mollicone, president of Heritage Loan and Investment Company in Providence, vanished at Boston's Logan Airport. Rumors abound that the bank had organized crime connections. Regulators allege Mollicone embezzled $13 million from the bank through phony loans. The bailout of Heritage threw the state's private insurer, Rhode Island Share and Deposit Indemnity Corporation (RISDIC), into insolvency.

Investigations underway

Several investigations of the entire fiasco are under way, involving a state House of Representatives committee, the attorney general, and Brown University president Vartan Gregorian, who is investigating RISDIC for the governor.

Back at Quonset Point, Mr. Boudreau says the crisis has been a learning experience for everyone. ``It changes how people think about banks and banking,'' he says. ``I will no longer have all my eggs in one basket.''