Freeze in Mississippi

It sounds like a story out of the Depression: depositors frightened about the safety of their savings make panicky mass withdrawals, threatening the stability of the institutions involved. Finally, worried legislators enact a freeze on deposits--a la Franklin Roosevelt's Bank Holiday of 1933--leaving tens of thousands of savers wondering when, if ever, they can get their money out. It happened late last month in Mississippi, and the case serves as a reminder that there are still some holes in the vaunted system of federal insurance that generally makes the great bulk of deposits in banks and savings and loan associations totally safe.

Emergency Session. One hole is that a handful of states (Maryland, Massachusetts, Mississippi, North Carolina and Ohio) allow state-chartered S & Ls to choose federal insurance, private insurance--or even no insurance. In Mississippi, eight S&Ls are uninsured; another 32 institutions doing about one-third of the S&L business in the state carry private insurance, most of it written by American Savings Insurance Co. The trouble began in early May, when two stockholders filed suit against the state's second largest S&L, the 47-branch Bankers Trust (which has no relation to the well-known New York bank of the same name). The plaintiffs charged that because of mismanagement, Bankers Trust was about to default on some of its $211 million in savings deposits. Bankers Trust officials at first denied it, but several weeks later agreed to place the S & L in receivership.

It then dawned on savers in other S & Ls that Bankers Trust not only was insured by, but owned 45% of American Savings. Heavy withdrawals began in the other nonfederally insured S & Ls, and by late June had developed into a full-fledged run on deposits. After conferring with Treasury Secretary William Simon, Mississippi Governor Charles ("Cliff') Finch proposed legislation freezing most business--no withdrawals, no loans--at the nonfederally insured S & Ls. The legislature hustled the bill through in its first emergency session since Hurricane Camille devastated the Gulf Coast in 1969.

The bill means the end of private S&L insurance in Mississippi: the closed institutions are required to negotiate to join the Federal Savings and Loan Insurance Corp. by April 1, 1977. Meanwhile, 18 have been allowed to reopen, but 22 are still closed, and the savings of their depositors hang in the balance. For example, Bankers Trust Depositor H.G. Fowler, 68, lived with his wife in a mobile home for 18 years while they saved to buy their own house. They did, only six days before the lawsuit was filed against Bankers Trust, and now worry that if they cannot tap their savings accounts, their Social Security income will not be enough to cover notes coming due on the house. Mississippi banks have offered to consider loans to stranded depositors in the S&Ls, but the Fowlers are not reassured. Says the despondent Mr. Fowler: "We have worked and saved and done without so we could be independent in our old age --but what good does it do now?"

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