Home State Savings: the run that closed 70 Ohio thrifts

A $145 million hole

Home State Savings Bank of Cincinnati was the largest savings institution in Ohio, with about $1.4 billion in assets, and had been owned since 1958 by developer Marvin L. Warner. Its deposits were insured not by the federal government but by the Ohio Deposit Guarantee Fund, a private fund created in 1956 to back Ohio-chartered savings and loans. ^[3][4]

About 70 thrifts with roughly $3.6 billion in deposits relied on that fund. Home State alone held $672 million of them. ^[2]

Home State did extensive repurchase-agreement business with E.S.M. Government Securities, a Fort Lauderdale dealer that the Securities and Exchange Commission shut down on March 4, 1985. Home State's losses came to about $145 million, more than its own capital plus the roughly $130 million the guarantee fund had available for every member statewide. ^[1][2][3]

A run, then a holiday

Word of the exposure reached the press on March 5. Depositors pulled about $154 million from Home State between March 4 and March 8. The Federal Reserve Bank of Cleveland lent against the bank's collateral on March 8, but Gov. Richard Celeste appointed a conservator and Home State did not reopen after the weekend. ^[1][2]

The panic spread to other fund-insured thrifts. On March 14, seven of the hardest-hit Cincinnati-area institutions lost more than $60 million. Early on March 15, Celeste closed all of the fund's institutions for three days. ^[1]

Getting federal insurance

Examiners from the Federal Reserve, the FDIC and the Ohio Division of Banks reviewed almost every institution over the weekend of March 16 and 17, and the Federal Home Loan Bank Board agreed to speed applications for federal deposit insurance. By March 29, 26 of the thrifts had reopened for full service, most with federal coverage. Others reopened with a $750-a-month cap on each depositor's withdrawals. ^[1][2]

Of the 70 fund members, 44 eventually received full or conditional federal approval and 25 merged or were acquired; Chase Manhattan took six and Home Savings of America took four. By Jan. 3, 1986, all but one small institution had reopened. ^[2]

The bill for the state

Ohio committed up to $151 million in nontax receipts to protect depositors: about $22 million to a new Savings and Loan Assurance Corp., which aided seven institutions, and $129 million to reopen Home State. ^[2]

After a May 21 law let out-of-state buyers operate Ohio institutions, American Financial Corp., parent of Hunter Savings, outbid Chemical New York by $5 million. Home State's 33 offices reopened on June 14, after depositors had gone three months without access to their money. ^[2][3]

Warner was convicted in 1987 on nine fraud-related counts and served 28 months in prison. Two former Home State presidents were also convicted. ^[3]

What changed

Maryland suffered a similar run on privately insured thrifts that spring, and four states, Maryland, Massachusetts, North Carolina and Pennsylvania, later required federal insurance for their institutions. ESM's collapse and others like it led Congress to pass the Government Securities Act of 1986. ^[2][3]

The Cleveland Fed's own assessment was that calming depositors takes accurate information, the ability to commit state money and a decision to do so, quickly. Early in the Ohio crisis, none of those was in place. ^[2]