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Records Relating to Rhode Island Shares and Dep... | State Archives Catalog

As receiver and liquidator for RISDIC, the Rhode Island Depositors Economic Protection Corporation (DEPCO) inherited RISDIC's corporate records. This Sub-Group consists of those records.

RISDIC was chartered by the Rhode Island General Assembly in 1969 and began operation in 1971 as a private nonprofit insurance company. Its initial purpose was to provide insurance for credit unions chartered in Rhode Island. At first, the membership was limited mostly to small institutions, with total deposits in 1972 of $134 million distributed over 40 institutions. Both the number of institutions and the total deposits in these institutions gradually increased, partly as a result of legislation enacted in 1976 that allowed RISDIC to insure financial institutions other than credit unions, and a 1977 law requiring insurance for all depository institutions. By 1980 RISDIC insured $761 million in deposits, slightly more than a 300 percent increase in real dollars from 1972, at 78 institutions. RISDIC’s responsibilities grew with its membership. In 1980, legislation permitted the Rhode Island Department of Business Regulation (DBR) to accept RISDIC examinations. Limited hiring by DBR in the late 1980s as a result of austere state budgets compelled DBR to rely increasingly on RISDIC personnel to conduct depository examinations.

Placing the management of the process for examining  the financial institutions with RISDIC, the same organization that insured them,  decreased the objectivity and effectiveness of the supervisory process. In addition, insurance coverage was increased by RISDIC over time, rising from the initial maximum coverage of $40,000 per account to $100,000, consistent with the increase in federal limits. The ceiling was raised further in 1985, when RISDIC adopted rules to provide insurance up to $500,000, and to provide unlimited coverage on specific accounts. The desire to extend insurance coverage to larger accounts and to a more diverse group of institutions was, in part, an attempt to compensate for losses resulting from a shift to federal insurance coverage by the stronger RISDIC- insured institutions. The exodus to federal insurance was accelerated by the failure of private insurance funds in Ohio and Maryland in early 1985. While the Rhode Island legislature did not enact a 1986 bill filed by the governor that would have required federal insurance for all RISDIC institutions, nine of the twenty-two largest RISDIC-insured institutions nonetheless became federally insured, leaving behind mostly small or weak institutions. Two-thirds of the remaining large RISDIC-insured institutions ultimately were unable to obtain federal insurance.

The defections of some of the strongest companies from RISDIC to the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA);  failures of a number of those institutions still insured by RISDIC, and withdrawals by panicked major depositors drained these institutions of their funds. This eventually hit RISDIC, which did not have the financial resources to respond to the crisis and make good on depositors’ losses.

Source: Thomas Pulkkinen and Eric Rosengren, "Lessons from the Rhode Island Banking Crisis," in: New England Economic Review, May/June 1993:3-12.

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