The savings and loan associations that dot southern Ohio seldom stir up any & excitement in the banking community, much less a panic. Yet for a few tense days last week, a crisis involving Ohio's thrift institutions sent tremors of anxiety through the financial world. Governor Richard Celeste's emergency shutdown of 69 privately insured thrifts, which were threatened by customer runs, was the most widespread closure in the financial industry since President Roosevelt declared a one-week national bank holiday in 1933. Ohio's closed-door policy was originally intended to last for only three days. It dragged on through the week as politicians, bureaucrats and bankers haggled around the clock to devise an orderly way to end it.
The thrift holiday cut some 500,000 Ohio depositors off from a total of $4 billion in savings. "The longer this goes on, the scareder I am," said Mary Lou Dehler of Cincinnati, who with her husband Richard, a retired postal worker, had accounts in Molitor Loan & Building. "My stomach just rolls over. They have got my whole life in that bank." The financial suffering in Ohio rattled consumers across the U.S. and worried foreign investors as well. In a classic sign of anxiety, moneymen bid up the price of gold by $35.70 last Tuesday, to $339 an ounce. At the same time, the rocketing dollar took a nosedive as traders fretted about the stability of the U.S. banking system and the strength of the economy.
By week's end, though, the crisis began to lift. The Ohio legislature passed a plan to start reopening the thrifts, and Federal Reserve Chairman Paul Volcker publicly vowed to loan them emergency cash if needed. President Reagan played down the situation when asked about it during his White House press conference. "This is not a major threat to the banking system," he said. "There is no other problem of that kind anyplace else in the country that we're aware of."
That was the reassurance depositors needed. When a handful of the 69 closed S and Ls reopened late last week, no new runs started. Generally, customers came in only to get walking-around money. At the Savings One Association in Dresden, a longtime customer deposited $15,000 as a show of support. Said Helen Mershon, a teller at the Southern Ohio Savings Association in St. Bernard: "Some of our customers just came in to say hello."
While the immediate danger of a wider panic now seems averted, the questions have just begun to be asked about what caused the Ohio panic and what should be done to halt future outbreaks at an earlier stage. The episode is the latest in a string of U.S. banking calamities that include a surge in shaky farm loans, management scandals and the $4.5 billion federal bailout last July of Continental Illinois.
Ohio's trauma probably further eroded the public's confidence in the safety of its deposits. "This problem with S and Ls is getting real widespread," said Accountant Bruce Humpherys, a thrift depositor in Pittsburg, Calif. "I'm wondering what's happening to our whole financial structure." The concern showed up dramatically in Pollster Albert Sindlinger's weekly survey of consumer sentiment. The percentage of people voicing confidence in the economy fell in one week from 50.4% to 42%, the steepest drop in the poll's 30-year history. "I wouldn't say consumers are panicked," said Sindlinger, "but they are shocked. They expect many more banking problems."