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Rhode Island Depositors' Economic Protection Corporation (RISDIC) Investigative Commission final reports

 Series — Box: 1. Rhode Island Depositors' Economic Protection Corporation (RISDIC) Investigative Commission final reports
Identifier: 1636-1736

Scope and Contents

This series includes several reports filed by the investigative commission. Included are a report for each phase of the investigation concerning the Lending Practices of RISDIC-insured financial institutions and a report on the Failure of Government Oversight. Also included are reports on "Withdrawals by Insiders," and, finally, a report on the collapse of the Heritage Loan and Investment Commission


  • 1991-1992


Language of Materials


Conditions Governing Access

No special restrictions unless otherwise specified.

Conditions Governing Use

Copyright is in the public domain unless otherwise specified. We reserve the right to restrict reproduction of materials due to preservation concerns.

Biographical / Historical

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 all depository institutions to carry deposit insurance. 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, state legislation (PL1980, ch. 196) allowed the Rhode Island Department of Business Regulation (DBR) to delegate to RISDIC the monitoring and examination of the status of credit unions’ depository conditions. Limited hiring by DBR in the late 1980s as a result of austere state budgets encouraged DBR to turn to this option. Placing the management of the process for examining these financial institutions with RISDIC, however, decreased the objectivity and effectiveness of the supervisory process. Under this arrangement, 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 a shift to federal insurance coverage by some of the stronger RISDIC-insured institutions. The exodus to federal insurance was accelerated by the failure of private insurance funds in other states during the mid-1980s. (The Rhode Island legislature did not enact a1986 bill filed by the governor that would have required federal insurance for all RISDIC institutions, but nine of the twenty-two largest RISDIC-insured institutions nonetheless opted for federal insurance, leaving behind mostly small or weak institutions.)

The defections of some of RISDIC’s s strongest financial institutions to the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Association (NCUA) in the face of other states’ financial woes; the aggressive risk-taking investment behavior of several RISDIC-insured institutions, their eventual failure and subsequent inability to obtain federal insurance, and, finally, large withdrawals by panicked major private depositors in the credit unions eventually overwhelmed RISDIC's financial resources, leaving it powerless to respond to the crisis and make good on remaining 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.

In February 1991, the state legislature established the Depositors Economic Protection Corporation, which inherited RIDIC-insured institutions' assets and liabilities, as well as its records.

In March 1991, the Rhode Island Legislature created a select commission to investigate the events that led to the failure of RISDIC-insured financial institutions. The commission's responsibilities included, "but [were] not . . . limited to: investigation of the causes of the collapse of RISDIC and the failure of many of its insured financial institutions, investigation of the role played by officials and agencies of state government in the evolution of this financial crisis[;] investigation of financial transactions at the RISDIC insured institutions which may have resulted from improper and/or insider influence and/or information; investigation of those individuals and entities whose negligence and/or misconduct directly or indirectly contributed to the financial loss sustained by the state and its citizens. The law also directed the commssion to make public presentations of the evdience uncovered by its investigations at hearings conducted by the commission. PL1991, ch. 15)

This series consists of transcripts of the public hearings held by the commission.

The RISDIC investigative commission consisted of nine members

The panel was headed by state House Judiciary Committee Chairman Jeffrey Teitz, D-Newport, though two state-hired lawyers, Alan I. Baron of Baltimore and John W. Nields Jr. of New York, were designated to do much of the work.

The probe was to consolidate the various investigations that were planned by the different branches of government. Teitz was to have headed a House probe and the Senate had planned one of its own.

"With the cooperation of the legislative leaders and the attorney general, there will be one unified probe," Gov. Bruce G. Sundlun said during a news conference.

Sundlun had been critical of the competing investigations into the collapse of the Rhode Island Share and Indemnity Corp., whose failure forced him to close 45 banks and credit unions Jan. 1.

The RISDIC Commission was given "broad jurisdiction to investigate criminal and civil liability as well as legislative and regulatory reforms," Sundlun said.

Teitz affirmed that the legislators were not beholden to anyone. ''We will explore the role which government officials and agencies played in the evolution of this crisis,'' he said. ''We will examine the operation of RISDIC and its insured financial institutions. We will carefully scrutinize financial transactions at those institutions which appear to involve insider influence and insider information.''

When the General Assembly established DEPCO the previous month (February 1991), DEPCO was given authority "to obtain, have access to and use in its absolute discretion all materials, documents, instruments, investigations, data, information, and knowledge obtained, provided for or produced in connection with the work of the commission and shall have the right to employ for its own purposes the services of any of the accountants, consultants, or investigators employed by the commission at its own expense." R.I. Gen. Laws Section 42-116-39


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