Book contents
- Frontmatter
- Contents
- Acknowledgments
- Introduction
- 1 Vehicles for accumulating capital
- 2 Insider lending and Jacksonian hostility toward banks
- 3 Engines of economic development
- 4 The decline of insider lending and the problem of determining creditworthiness
- 5 Professionalization and specialization
- 6 The merger movement in banking
- Conclusion
- Index
- Plate section
Conclusion
Published online by Cambridge University Press: 06 July 2010
- Frontmatter
- Contents
- Acknowledgments
- Introduction
- 1 Vehicles for accumulating capital
- 2 Insider lending and Jacksonian hostility toward banks
- 3 Engines of economic development
- 4 The decline of insider lending and the problem of determining creditworthiness
- 5 Professionalization and specialization
- 6 The merger movement in banking
- Conclusion
- Index
- Plate section
Summary
On January 2, 1991, Rhode Islanders awoke to the somber news that Governor Bruce Sundlun had declared a bank holiday and closed all of the state's privately insured banks and credit unions. Each of the affected institutions was a member of the Rhode Island Share and Indemnity Corporation, or Risdic, as it was commonly known. Risdic, it turned out, was insolvent – bankrupted by the failure of one of the largest banks it insured, and because state law forbade banks and credit unions to operate without insurance, Risdic's member institutions were forced to shut their doors. Over the next few days, the news only worsened. When the closed institutions applied for federal insurance to enable them to reopen, it quickly became apparent that only some of them would qualify. Federal regulators rejected applications from the rest on the grounds that their portfolios contained too high a proportion of real-estate loans, especially commercial ones, and that their default rates were unusually high. As news reports revealed, at the root of both problems were excessive loans to developers who were closely connected with the institutions' managers.
To most Rhode Islanders, the insider lending uncovered by the Risdic collapse had no redeeming social value. It was corruption pure and simple – comparable to the bribes and kickbacks that repeatedly surfaced in investigations of Rhode Island's state and local government. Most Americans, moreover, viewed the situation in a similar light, as the contemporaneous savings-and-loan debacle suggested.
- Type
- Chapter
- Information
- Insider LendingBanks, Personal Connections, and Economic Development in Industrial New England, pp. 157 - 165Publisher: Cambridge University PressPrint publication year: 1994