There aren't many days that go by without former Gov. Bruce Sundlun being reminded of the state's infamous banking crisis.
It was Sundlun who made the decision -- on his first day in office on Jan. 1, 1991 -- to close the state's credit unions in response to the collapse of the Rhode Island Share and Deposit Indemnity Corp. (RISDIC), a private insurer.
It was not an easy decision for Sundlun. Nor, at the time, a popular one with those depositors who suddenly found themselves frozen out of savings accounts.
But nearly a decade later, Sundlun, who has an office and teaches classes on the University of Rhode Island's Kingston campus, feels vindicated.
"Most of the depositors of the credit unions are still angry that I closed them," said Sundlun. "But occasionally, someone will come up to me and thank me, but they do it almost surreptitiously, as if someone may hear them," said Sundlun.
Sundlun takes comfort that credit union depositors were repaid their money with interest. He points out that Rhode Island was the sixth state in the country to be hit by a banking crisis and that depositors here were paid in full, while other states have never completely repaid depositors. And Sundlun is convinced that the proper steps have been taken to avoid a similar crisis in the future.
"We have gotten over the banking crisis, because we now require federal insurance for all financial institutions, and in order to get federal insurance, a bank has to meet requirements much higher than what RISDIC required of the credit unions," he said.
The banking crisis -- or reverberations from it -- remain in the public eye.
The debt, at one time more than $600 million, must be retired. Litigation -- both criminal and civil -- must be resolved.
It is the retirement of the Rhode Island Depositors Economic Protection Corporation (DEPCO) debt that has kept the DEPCO saga in the news of late -- that and a series of related court cases. DEPCO is a state agency that was created in the wake of the banking crisis.
Gov. Lincoln Almond continues to call public attention to the retirement of the DEPCO debt by scheduling news conferences and sending out press releases. DEPCO was created in 1991 by statute, to pay back the depositors of the closed credit unions and banks when RISDIC failed in December 1990. The state is committed, by statute, to provide DEPCO with 6/10ths of 1 percent of each dollar of the sales and use tax revenue. Originally, $697 million of financing had been required to repay the depositors.
Almond has been quick to point out that the DEPCO debt is shrinking quickly.
This summer, DEPCO purchased $26 million in U.S. government securities to retire $25.7 million in bonds issued in 1993 that were due to mature by August 1, 2013. The move should result in $21.4 million savings in interest payments. The transaction is part of a plan, which is projected to enable DEPCO to make the final principal payment by August 1, 2001.
DEPCO debt now stands at $152 million, an almost 50 percent reduction since Nov. 19, 1996, when Almond announced transactions resulting in reducing the DEPCO debt to $300 million.
Almond called the latest transaction a "significant leap forward" in efforts to retire the DEPCO debt.
In a press release, Almond and his administration took credit for expediting the DEPCO debt retirement. "
Not only have we greatly accelerated the re-payment schedule to reimburse depositors, I am also pleased to announce that we have been able to reduce DEPCO debt by 50 percent over the past 19 months," said Almond.
Almond's opponent in the race for governor this November, Democrat Myrth York responded quickly to Almond's statement, suggesting that "Governor Almond has raided the DEPCO fund every year since being elected to office and any reduction in this debt has actually come in spite of his repeated raids on this fund."
Down in Kingston, Democrat Sundlun said he "didn't want to get into a fight over this with Almond." He isn't running for any office and you get the sense that Sundlun is enjoying his time out of the spotlight. But the retirement of the DEPCO debt, he said, was carefully planned and guided by legislation passed by the General Assembly.
"The DEPCO debt reduction program is laid out in the DEPCO legislation," said Sundlun. "Twice, the state has used DEPCO funds for general operating expenses. They've got about $150 million worth of debt still unpaid and assets worth $50 million or more, which they expect to sell within the next year. The six tenths of 1 percent built into the sales tax for reducing the DEPCO debt generates about $50 million a year."
High-profile litigation is expected to keep the DEPCO saga alive for a least a couple more years. Last fall, the state accepted a $103 million settlement of a long running lawsuit against accountants Ernst & Young. Ernst & Young had been accused by DEPCO of professional malpractice in its role as an auditor for RISDIC. As part of the settlement, the accounting firm did not admit wrongdoing or liability. A spokesman said at the time that Ernst & Young had made a "business decision to settle because of the cost, complexity and uncertainty of future litigation."
There remain several open cases involving the banking crisis, according to DEPCO records. Among the defendants in those open cases are: accountants Piccerelli, Gilstein & Co.; law firms Adler Pollock & Sheehan, Edwards & Angell; and financial institutions Fleet Financial Group, Fleet National Bank; the officers and directors of the former Heritage Loan & Investment and the directors of the former Greater Providence Deposit & Trust. In addition to cases of alleged professional malpractice, there are approximately 70 outstanding collections cases that are also making their way through the state's court system.
Leonard Decof, a Providence lawyer who represents DEPCO, expects that most of the cases will be resolved in the next year or two.
"What Rhode Island has done has been by far the fastest and the fullest relief of cases such as this anywhere in the country," said Decof.
John McJennett, executive director of DEPCO, believes the state has done a good job in cleaning up an ugly mess.
"The decision to pay all of the depositors all of their money and pay for it through the sales tax contribution was fairly controversial," he said. "Maryland told its depositors to wait -- and they did, for 12 years. And I presume some of them took haircuts on their principal."
Most importantly, perhaps, state law now tightens the fiscal responsibilities of all lending institutions. And that, said McJennett, should go a long way to preventing such a disaster from happening again.
"We have no privately insured deposits," said McJennett. "That was the cause of the problem."
McJennett expects the DEPCO debt to be retired by August of 2001. It should mark the end of a sad chapter in Rhode Island's history. It may also be a time to reflect on what happened. Retiring the debt will no doubt be a cause for celebration, but McJennett will keep it in perspective. He has been dealing in some pretty substantial numbers in recent years.
"The taxpayers will have experienced $400 million in expense," said McJennett. "That's the damage."
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