PROVIDENCE, R.I. -- State government is willing to support closed Rhode Island credit unions and banks in search of federal insurance to reopen their doors, but only to a point.
Officials said Wednesday that if it becomes clear that the interests of depositors are being sacrificed for the self-interest of the financial institutions, then the state will step in.
'What we do not want is depositors kept away from their money beyond any reasonable hope of insurance,' said Sheldon Whitehouse, chief legal counsel to Gov. Bruce Sundlun and a primary strategist behind the effort to solve the ongoing Rhode Island banking crisis.
Whitehouse and other Sundlun aides held a briefing at the Statehouse to clarify their plan to rescue an estimated $1.4 billion in deposits at 11 closed credit unions and five closed banks.
He said it was erroneous to assume that the newly sworn governor wants the 16 imperiled institutions to abandon their plans to obtain federal insurance or otherwise get back on their feet.
But Whitehouse also said it was wrong to believe the state is without power to push the shaky credit unions and banks toward receivership and ultimately sell off their assets so depositors can get their money back.
Sundlun contributed to confusion over the banking crisis when, on Tuesday, he said the state could not force institutions to be part of the Depositors Economic Protection Corp., a state agency that would be charged with dismantling credit unions and banks in receivership.
Sundlun spokeswoman Barbara Cottam said what the governor meant was the state can take a closed credit union or bank to court but only a judge can place it in receivership and force it into the DEPCO plan.
Sundlun closed 45 credit unions, loan and investment firms and banks Jan. 1, the day of his inauguration, in response to the collapse of the Rhode Island Share and Deposit Indemnity Corp., a private company that insured the institutions.
The closures prevented runs on deposits, but also froze 300,000 accounts totalling $1.7 billion. That left hundreds of thousands of Rhode Islanders without access to their money.
On Monday, 22 small credit unions reopened after qualifying for federal insurance with the National Credit Union Administration, but 11 others and five banks were rejected by NCUA.
The government-backed insurer felt their financial health was imperiled by bad real estate and commercial loans. The rejected credit unions and banks are among the largest in the state.
