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Ohio's crisis began early this month with the collapse of an obscure Fort Lauderdale firm, E.S.M. Government Securities, a dealer in U.S. Treasury bills and bonds. When customers of Cincinnati's Home State Savings heard that their bank stood to lose a whopping $150 million as an E.S.M. investor, they began withdrawing money so fast that banking regulators closed the institution. The panic then spread, because Home State's failure threatened to exhaust a private insurance fund of $130 million that covers deposits at 70 of Ohio's nearly 300 thrifts. Crowds of up to 1,000 people, some equipped with lawn chairs and portable TV sets, camped overnight in front of S and Ls, hoping to claim their money before it was all gone.
Governor Celeste decided that he had no choice but to close all the privately insured thrifts. The rest of the state's S and Ls were exempted from the order because they are members of the Federal Savings and Loan Insurance Corp., a U.S. Government agency that guarantees deposits of up to $100,000. After the closings, the Ohio legislature went into emergency session to debate various strategies for putting the thrifts back in business. Meanwhile, Celeste flew around the state almost constantly. The Governor huddled with bankers, gave reassuring speeches to crowds of reporters and depositors and answered anxious questions on call-in radio shows.
Celeste also jetted to Washington to get help from federal banking authorities. Edwin Gray, chairman of the Federal Home Loan Bank Board, which oversees the FSLIC, promised Celeste "an unprecedented, superhuman effort" to complete the paperwork necessary to bring as many as possible of the closed Ohio thrifts under federal insurance. Fed Chairman Volcker also pledged support. Said he: "The job now is to get the institutions opened rapidly and in an orderly fashion so that we don't have a repetition of the situation."
After two days of marathon sessions, the Ohio legislature approved a plan just before 1 a.m. Wednesday, and Celeste signed it at 2:30 a.m. The measure allowed the thrifts to open for business as usual if they proved their solvency and applied for federal insurance. Weaker thrifts that fail to qualify for U.S. protection within 120 days will probably be merged with stronger financial institutions. Those unable to find partners are likely to be liquidated by state regulators to pay off depositors. Meanwhile, even thrifts that do not yet qualify for U.S. insurance can let depositors withdraw up to $750 a month.
Many Ohioans, though, remain angry and bewildered. "I'm very damn mad and very upset," said Hugh Butterfield, a Centerville retiree who appeared on the Donahue TV show last week. "You work all your life, and then something like this happens." While most depositors will eventually have access to their money, the bank holiday disrupted thousands of lives. "The thing that's breaking my heart," says Paulette Lotspeich, a Cincinnati substitute teacher and mother of three, "is that my husband and I were going to go on a trip by ourselves for the first time in 14 years, to Florida. That's over now. We can't afford to go." Many businesses tried to help out the cashless consumers. Some grocery chains continued to accept checks drawn on the thrifts. Nonetheless, many depositors ran short of money for such necessities as medical care and gasoline.