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THE LONESOME REGULATOR Md. official sees job shrink as S&Ls; vanish

THE BALTIMORE SUN

Louis A. Reinhardt Jr., Maryland's chief savings and loan regulator, is facing a singular dilemma.

Baltimore-based St. Casimir's Savings and Loan Association could get its final OK to convert to a mutual savings bank any day now. When that happens, Mr. Reinhardt will no longer regulate S&Ls.; He'll regulate an S&L.;

That's right. Un. Uno. Ein. One. When St. Casimir's disappears from Mr. Reinhardt's radar screen, Midstate Savings and Loan, a modest Rodgers Forge thrift with about $75 million in assets, will have the regulatory agency all to itself.

But Midstate will not have that exclusive for long. Maryland's Division of Savings and Loan Associations is scheduled to go out of business next June 30, when the state by law must finally get out of the troublesome business of chartering thrifts.

Midstate isn't planning to hang onto its state charter until the last minute, however. Midstate Chairman Kathryn H. Gerling says the highly rated 107-year-old institution has already begun the process of converting to a federal charter and expects to switch by the end of this year.

" 'The last shall be first,' the Bible says," Mrs. Gerling commented. "We were in no particular hurry to change."

For a man who's watching his job melt away like butter on a hot flapjack, Mr. Reinhardt remains in good humor. He understands and agrees with the phaseout of his division, and he isn't just sitting around staring out the window. About 85 percent of his time is now occupied by other duties, including supervising the 63-employee Financial Audit Services Team, a task force created by Gov. William Donald Schaefer to consolidate all of the state's various auditors.

"Without FAST, I'd say it would be kind of a lonely life," the affable, grandfatherly regulator said during an interview in the 13-by-22-foot Baltimore office that is the last bastion of his once-bustling domain. Once the agency had 37 employees. Now it has one -- Mr. Reinhardt, whose salary is $68,273.

The agency may be moribund now, but Mr. Reinhardt remembers more exciting times. After a long career with Baltimore Federal Financial, he joined the division as deputy director in April 1986 -- part of the team sent in torevitalize the battered agency following the Maryland S&L; crisis.

At the time, the S&L; division was in disrepute, widely blamed for lax regulation and a cozy relationship with the industry in the years leading up to the 1985 crisis. In that debacle, some of the state's largest thrifts went under, Maryland's private deposit insurance plan collapsed and several S&L; executives went to prison for plundering their institutions.

When Mr. Reinhardt came on board, the division still was supervising 115 state-chartered S&Ls.; They had combined assets of more than $4 billion, and 102 of them were covered by the Maryland Deposit Insurance Fund, the successor to the failed Maryland Savings-Share Insurance Corp. Those 102 were under a mandate to meet the tougher capitalization and management standards needed to qualify for federal deposit insurance or go out of business.

In 1987, the man who brought Mr. Reinhardt on board, William M. Griffin, resigned as director and Mr. Reinhardt was named to succeed him, inheriting the job of guiding the MDIF-insured thrifts out of state protection. The final deadline for the smallest thrifts was June 30, 1989; if any institution was still under MDIF at that time, it would be taken over by the state.

The busiest, most tense period of his tenure was the last six months before the deadline, Mr. Reinhardt recalls. There were still 30 to 35 institutions without federal insurance, and if they had to be taken over, Maryland's taxpayers would end up footing the bill. State budget officials had set aside $10 million to $15 million to clear that last batch of S&Ls; off its books.

Working closely with Lloyd Jones, then the director of MDIF, Mr. Reinhardt managed to shepherd all of the institutions out of the Maryland insurance fund without having to spend any of that money. Some got federal insurance, some liquidated voluntarily, some were acquired by other institutions, some transformed themselves into commercial banks -- but none needed a state bailout.

"Lou was a very important player in that," said Mr. Jones, now the commissioner of the state Department of Assessments and Taxation. In their tense negotiations with various S&Ls;, Mr. Reinhardt played good cop to his bad cop, Mr. Jones recalled. "Lou was no softy," he said. "I would say that we [MDIF] were a little more tough."

Carville A. Lauenstein, managing director of the Back and Middle River Federal Savings and Loan Association, went through that process and remembers that Mr. Reinhardt "never dictated, never pressured you in any way and got the job done with a minimum of fanfare."

Since the deadline passed, Mr. Reinhardt has been presiding over the withering-away of a state agency. After the S&L; crisis, the General Assembly made the rules governing state-chartered even tougher than those for federally chartered institutions to encourage the S&Ls; to switch to federal jurisdiction.

With that action, much of the reason for keeping a state charter evaporated. A steady drift to the federal system left only seven or eight S&Ls; under the division's control by early 1990, when state legislators -- by then sick of anything having to do with S&Ls; -- decreed that the state would get out of the business of chartering thrifts.

The assembly's actions left Mr. Reinhardt as a regulator with little to regulate. His last enforcement action was taken in 1989, and the only time his S&L; job heats up now is when a banking crisis breaks out in some other state and journalists start calling for background information on Maryland's experience.

With the expiration of Mr. Reinhardt's division next year, Maryland will become one of only a handful of states that have abandoned S&L; regulation, said John Seymour, past president of the American Council of State Savings Supervisors.

However, with the passage of the federal Financial Institutions Reform, Recovery and Enforcement Act last year, all thrifts -- no matter what kind of charter they have -- were brought under the supervision of the Treasury Department's Office of Thrift Supervision and the Federal Deposit Insurance Corp. So, state-chartered institutions end up reporting to three regulators while federally chartered thrifts answer only to two.

"FIRREA destroyed the state-charter system," said Mr. Seymour, Illinois' chief S&L; regulator, adding that many states have merged S&L; regulation into larger agencies as the number of charters has diminished.

One S&L; executive who will miss state regulation is Ronald Jason, controller of St. Casimir's, who says his conservatively run East Baltimore thrift has always had a good relationship with Mr. Reinhardt.

"He's accessible," said Mr. Jason. "When you've got a problem you can talk to him, which is not necessarily the case with the feds."

When Midstate leaves the fold and his agency expires, "the passing will be very quiet," Mr. Reinhardt says. The sign will come off the door, the files will go to the archives, and the Maryland Division of Savings and Loan Associations will pass over to whatever Valhalla awaits government agencies when they die.

At 60, two years from retirement age, Mr. Reinhardt hopes to continue as acting director of FAST, but he said that he has no guarantee. For now, he continues to watch over his remaining two S&Ls; and wait for the end. "It's a bit of an unusual feeling," he said. "I didn't expect this would happen when I came here."

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