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Rhode Island banking crisis
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Rhode Island banking crisis
The Rhode Island banking crisis took place in the early 1990s, when approximately a third of the U.S. state of Rhode Island's population lost access to funds in their bank accounts. The events were triggered by the failure of a Providence bank, Heritage Loan & Investment, due to long-term embezzlement by its president. News of its problems led to a bank run in which customers tried to withdraw money from the bank which did not have enough money available. In normal circumstances, depositors would be protected by the bank's insurance, but the state's private insurer had a long history of problems and was unable to fulfill its commitments. When the insurer collapsed, Governor Bruce Sundlun announced the closure of 45 credit unions and banks just hours after his inauguration.
In the first banking emergency in the state since the Great Depression, 300,000 depositors lost access to their money. Though some of the institutions reopened relatively quickly after obtaining federal insurance, many did not qualify and remained closed for an extended period of time. The state government set up an agency to manage the crisis, selling $697 million in bonds to repay people while filing about 300 lawsuits against the closed institutions and other companies that played a role in the crisis.
The shutdown sparked demonstrations and protests. Corruption hearings added to public frustration, when several executives and public officials were called to testify about their last minute withdrawals from banks just before their closure. The manhunt for Joseph Mollicone Jr, the Heritage Loan & Investment president who had fled to Utah, took nearly 18 months before he turned himself in. He was convicted, and given what at that time was the state's most severe sentence for a "white collar" offense.
Though all depositors were eventually repaid, most had to wait months or years for compensation. Most of the big banks remained closed for more than a year, and several never reopened.
Heritage Loan & Investment was a bank in the Federal Hill neighborhood of Providence, Rhode Island. In 1990, examiners with the state's Department of Business Regulation (DBR) discovered $13 million of fraudulent loans in the bank's records that had purportedly been made to 128 people and businesses that never asked for or received a loan. The loans had been fabricated by bank president, Joseph Mollicone Jr., who began taking money from the bank in 1986 and had set up more than 90 businesses to funnel the money through. The Providence Journal reported that "he became legendary for dodging questions about missing bank records, once suggesting to a bank examiner: 'Let's have a muffin'."
In October 1990, the bank's insurer, the Rhode Island Share and Deposit Indemnity Corporation (RISDIC), took control of the bank following an examination that revealed its poor state. When Mollicone learned authorities had caught on to his illicit activities, he fled the state, disappearing on November 8, 1990, after boarding a plane at Logan International Airport in Boston. A grand jury investigation opened a few days later, on November 13. As Heritage customers learned what was happening, there was a bank run in which they withdrew $13 million of the bank's $22 million in total deposits. On November 18, Governor Edward D. DiPrete closed the bank on what was supposed to be a temporary basis, while officials tried to determine what was going on and control the damage.
On November 26, Mollicone was charged with embezzlement and considered a fugitive. By the time he left, Mollicone had taken more than 80% of the money people deposited at the bank, according to prosecutor Kevin Bristow. The state attorney general's office estimated that he stole $15.2 million overall. The bank opened again on December 4 to allow depositors to withdraw the rest of their funds, before closing again.
The Heritage Loan & Investment bank was insured by the Rhode Island Share and Deposit Indemnity Corporation (RISDIC), a state-chartered nominally private enterprise which backed 45 of the state's credit unions and banks. It started operating in 1971 and was intended to insure only small institutions, with $134 million insured in 1972. It expanded quickly, though, increasing to $761 million insured in 1980. It continued to grow through the 1980s, enabled by loosened state and federal laws.
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Rhode Island banking crisis
The Rhode Island banking crisis took place in the early 1990s, when approximately a third of the U.S. state of Rhode Island's population lost access to funds in their bank accounts. The events were triggered by the failure of a Providence bank, Heritage Loan & Investment, due to long-term embezzlement by its president. News of its problems led to a bank run in which customers tried to withdraw money from the bank which did not have enough money available. In normal circumstances, depositors would be protected by the bank's insurance, but the state's private insurer had a long history of problems and was unable to fulfill its commitments. When the insurer collapsed, Governor Bruce Sundlun announced the closure of 45 credit unions and banks just hours after his inauguration.
In the first banking emergency in the state since the Great Depression, 300,000 depositors lost access to their money. Though some of the institutions reopened relatively quickly after obtaining federal insurance, many did not qualify and remained closed for an extended period of time. The state government set up an agency to manage the crisis, selling $697 million in bonds to repay people while filing about 300 lawsuits against the closed institutions and other companies that played a role in the crisis.
The shutdown sparked demonstrations and protests. Corruption hearings added to public frustration, when several executives and public officials were called to testify about their last minute withdrawals from banks just before their closure. The manhunt for Joseph Mollicone Jr, the Heritage Loan & Investment president who had fled to Utah, took nearly 18 months before he turned himself in. He was convicted, and given what at that time was the state's most severe sentence for a "white collar" offense.
Though all depositors were eventually repaid, most had to wait months or years for compensation. Most of the big banks remained closed for more than a year, and several never reopened.
Heritage Loan & Investment was a bank in the Federal Hill neighborhood of Providence, Rhode Island. In 1990, examiners with the state's Department of Business Regulation (DBR) discovered $13 million of fraudulent loans in the bank's records that had purportedly been made to 128 people and businesses that never asked for or received a loan. The loans had been fabricated by bank president, Joseph Mollicone Jr., who began taking money from the bank in 1986 and had set up more than 90 businesses to funnel the money through. The Providence Journal reported that "he became legendary for dodging questions about missing bank records, once suggesting to a bank examiner: 'Let's have a muffin'."
In October 1990, the bank's insurer, the Rhode Island Share and Deposit Indemnity Corporation (RISDIC), took control of the bank following an examination that revealed its poor state. When Mollicone learned authorities had caught on to his illicit activities, he fled the state, disappearing on November 8, 1990, after boarding a plane at Logan International Airport in Boston. A grand jury investigation opened a few days later, on November 13. As Heritage customers learned what was happening, there was a bank run in which they withdrew $13 million of the bank's $22 million in total deposits. On November 18, Governor Edward D. DiPrete closed the bank on what was supposed to be a temporary basis, while officials tried to determine what was going on and control the damage.
On November 26, Mollicone was charged with embezzlement and considered a fugitive. By the time he left, Mollicone had taken more than 80% of the money people deposited at the bank, according to prosecutor Kevin Bristow. The state attorney general's office estimated that he stole $15.2 million overall. The bank opened again on December 4 to allow depositors to withdraw the rest of their funds, before closing again.
The Heritage Loan & Investment bank was insured by the Rhode Island Share and Deposit Indemnity Corporation (RISDIC), a state-chartered nominally private enterprise which backed 45 of the state's credit unions and banks. It started operating in 1971 and was intended to insure only small institutions, with $134 million insured in 1972. It expanded quickly, though, increasing to $761 million insured in 1980. It continued to grow through the 1980s, enabled by loosened state and federal laws.