Rhode Island Banking Crisis Explained

Rhode Island's banking crisis was a major economic issue that affected the state's residents and businesses. The crisis was triggered by the collapse of several banks, including the Union Bank, which was one of the largest banks in the state.

The collapse of the Union Bank was caused by a combination of factors, including poor management and a lack of regulation. The bank's executives made a series of risky investments, which ultimately led to its downfall.

Many Rhode Islanders saw their savings and investments disappear overnight, leading to widespread financial hardship. The crisis also had a ripple effect on the state's economy, leading to job losses and business closures.

The state government was forced to step in and provide emergency loans to help stabilize the banking system.

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The Rhode Island banking crisis was a complex issue with deep roots. The state's economy was heavily reliant on the banking industry, which had grown rapidly in the early 20th century.

Many of the state's banks had invested heavily in the stock market, which had led to a significant buildup of assets and liabilities. This made them vulnerable to market fluctuations.

The banking industry's close ties to the state's politicians and business leaders created a culture of lax regulation and oversight. This allowed banks to engage in risky practices with little consequence.

The collapse of the stock market in 1929 triggered a chain reaction of bank failures, as depositors rushed to withdraw their funds. This led to a wave of bank runs and closures, which further exacerbated the crisis.

The state's economy was severely impacted, with many businesses and individuals suffering significant losses. The crisis ultimately led to the closure of many banks and a significant decline in the state's economic output.

The public reaction to the Rhode Island banking crisis was intense and widespread. People were shocked and upset by the sudden closure of so many banks.

Local newspapers regularly printed lists of banks that had been opened or remained closed, which only added to the sense of uncertainty and chaos.

Some depositors had their houses foreclosed or other property repossessed, while others saw their businesses fail or had to lay off workers. Many were struggling to make ends meet.

The number of bankruptcies in the state increased by 62% between 1990 and 1991, a staggering figure that reflected the crisis's far-reaching impact.

The Rhode Island Community Food Bank had to distribute 30% more food than it did in 1990, a total of four million pounds, to help those in need.

Grocery chains Almacs and Stop & Shop showed a more positive side by continuing to accept checks from closed banks, to be cashed later.

In Woonsocket, one of the cities hardest hit, more than half of the residents were customers of one of the larger closed credit unions, making it a particularly tough spot.

The city's already high unemployment rate of over 11% made the crisis even more devastating, with over 30 businesses closing by the end of February.

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Group therapy sessions were set up in Woonsocket to help elderly residents cope with the loss of their credit union, which had been a vital lifeline for many.

Protesters began to take to the streets, with some events drawing hundreds of people, including a gathering in the Statehouse rotunda.

The governor's office released a list of depositors with at least $100,000 locked up in one of the closed banks, which sparked outrage and surprise among those on the list.

The protests were notable for their diversity, with participants ranging from people in fisherman's hats to three-piece suits and full-length fur coats, according to multiple publications.

The unrest was so intense that even the State House was vandalized, with someone smearing excrement on the walls.

The resolution of the Rhode Island banking crisis was a long and challenging process. 25 of the 36 institutions obtained federal insurance and retained their status as independent banks or credit unions.

Customers at six institutions were repaid by the end of 1991. Two nondepository institutions became inactive.

The crisis led to the sale of $697 million in bonds by DEPCO during its handling of the crisis. DEPCO filed about 300 lawsuits in total, targeting the failed institutions and other entities.

A major legal victory came in September 1997, when DEPCO won a $103 million settlement against Ernst & Young, the auditor for RISDIC. The firm had failed to identify significant problems in the insurer's records.

Following the crisis, all Rhode Island banks are now insured by federal entities. DEPCO's debts were settled by August 30, 2000, and it ceased operations in January 2003.

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The Rhode Island banking crisis involved several key players and institutions.

The Federal Reserve played a significant role in the crisis, with the Federal Reserve Bank of Boston providing emergency loans to banks in Rhode Island.

The state's banking regulator, the Rhode Island Division of Banking, was also a key player, as it oversaw the state's banks and helped to implement banking reforms.

Joseph Mollicone's role in Rhode Island's banking crisis was a significant one. He stole an estimated $15.2 million from Heritage Loan & Investment Co., which helped spark the state's worst banking crisis since the Great Depression.

One out of every three Rhode Islanders was impacted by his theft at the time of his crimes. Mollicone's scheme was a massive one, with him skimming millions of dollars from the bank he had inherited from his father.

He began stealing in the mid-1980s and was prosecuted for $12 million in losses. Mollicone fled to Salt Lake City in November 1990 as authorities closed in on him.

He lived in Utah under the name John Fazioli, a childhood acquaintance who had died before Mollicone left the state. Mollicone posed as a Boston jewelry maker who headed to the mountains to ski and relax.

A jury convicted him a year after he surrendered in April 1992 of five counts of embezzlement, 19 counts of filing false bank entries, and two counts of conspiracy.

The Rhode Island Share and Deposit Indemnity Corporation, or RISDIC, played a significant role in the state's banking crisis. RISDIC was a state-chartered credit union that was supposed to provide protection to depositors, but it ultimately failed, leaving thousands of people without their savings.

RISDIC's collapse was investigated by a nine-person panel formed by the state Legislature, which held televised hearings in July 1991. The hearings questioned several high-profile individuals, including the Mayor of North Providence, a state senator, and credit union executives.

The hearings were a major catalyst for public outrage, with many depositors feeling that they had been misled by RISDIC's leaders. The investigations revealed that certain insiders had withdrawn hundreds of thousands of dollars just before the crisis, exacerbating the problem.

The public's frustration boiled over into protests and demonstrations, with several notable events occurring in the weeks following the hearings. In August 1991, about 250 angry depositors staged a demonstration outside the Rhode Island Central Credit Union in Warwick, which turned into a march that obstructed traffic for two hours.

The protests continued, with 200 people staging a march from the Statehouse to DEPCO offices two days later. In September 1991, more than 500 chanting protesters gathered at the Statehouse, dumping teabags in front of the Governor's office in a symbol of their discontent.

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The Heritage Loan & Investment collapse in 1990 had a ripple effect on the entire banking system in Rhode Island. The bank's president, Joseph Mollicone Jr., had embezzled more than 80% of the money deposited at the bank, leaving a trail of financial devastation.

The bank's insurer, the Rhode Island Share and Deposit Indemnity Corporation (RISDIC), was left with a huge hole in its finances after the collapse. RISDIC had a $25-million reserve, but the $13-million bank run in November used up a large part of it.

RISDIC was left insolvent, unable to meet deposit insurance claims. This led to a wave of withdrawals from other RISDIC-insured institutions, further depleting RISDIC's resources.

The incoming administration of Bruce Sundlun planned to switch RISDIC-insured institutions to federal insurance, but action was hastened after a letter was delivered from the RISDIC board of directors. On December 31, 1990, the RISDIC board voted unanimously to request conservatorship due to "extraordinary liquidity demands ... in recent days."

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