WASHINGTON - A run this week on a New York thrift - one of the first in the country in a decade - has left its management open to the criticism that it mishandled the discovery of an alleged embezzlement scheme.
Jill Sung, the executive vice president of $282-million-asset Abacus Federal Savings Bank, insisted in an interview that the run, which started Monday at two branches in New York and spread Wednesday to one in Philadelphia, was sparked by rumors in the Chinese immigrant community that the thrift could soon fail.
Ms. Sung and Office of Thrift Supervision officials rushed Wednesday to reassure the public that Abacus was in sound financial condition and was not in danger of failing.
Still, observers said an announcement that the thrift has handed out to the community during the past several days may have led some customers to doubt that they could recover all of their deposits. The announcement said that Carol Lim, a manager of one of the branches, had been fired because she made unauthorized withdrawals from checking and other accounts, pocketed money that customers thought they had deposited in certificates of deposit, and committed other frauds.
[Attempts to reach Ms. Lim were unsuccessful.]
Though the announcement said that Abacus expects to "fully restore" any customer whose accounts were wrongfully accessed, it also said that the thrift might not be responsible for money that never made it into CDs.
"These account holders' claims will be submitted to the bank's insurance carrier to determine to what extent the account holder may be contributorily negligent," the announcement said. "Therefore, these accounts may or may not be entitled to full or partial compensation."
Industry experts said that, while legally correct, particularly if customers knew that a CD was false or should have realized that they were holding inauthentic receipts, the announcement could have contributed to the ensuing panic.
"The statement … is probably right - they will look into it and find out if it was a bona fide transaction," said John Douglas, a partner with the law firm Alston & Bird in Atlanta and a former general counsel of the Federal Deposit Insurance Corp. "You can also understand customers saying, 'I don't know what the hell is going on. I'm interested in getting my money back so I don't have to worry.' It seems to cast a shadow on everybody's deposits, and the best assurance is having the money in your hand."
Bert Ely, an independent consultant in Alexandria, Va., agreed that the announcement likely "contributed" to the run, though he cautioned that there could have been other factors.
Regulators noted some of these factors. "Unfortunately, a series of events, including rumors, bad publicity, and other factors, exacerbated an already difficult situation," said OTS Deputy Director Richard M. Riccobono.
Ms. Sung, the daughter of the thrift's founder and chairman, Thomas Sung, said that the announcement was made to ensure that people in the community did not continue to believe Ms. Lim worked for Abacus.
"We announced that to the Chinese media because we wanted to tell people that she was no longer working here," Ms. Sung said. "She was very well known in the community, and we wanted to make it very clear."
She dismissed arguments that the announcement contributed to the crisis.
"It was separate," she said. "The people coming in now want to get into their safety deposit boxes. This has nothing to do with accounts. It is illustrated by the spiraling out of control. … We believe it will burn itself out, when people go into their boxes and review their stuff and see there is nothing missing."
An OTS spokesman said the last examination had been done very recently and that the thrift was healthy. He added that the Federal Reserve Bank of New York had supplied extra cash to Abacus to help it weather the run. Customers were being given up to $3,000 in cash and any remaining balance in a bank check, the spokesman said.
Ms. Sung would not say how much money was withdrawn from the thrift, saying that police officials had told her not to release the information. However, she said that Abacus would not be harmed as a result of the run.
"This thing is a panicky thing," she said. "It is a rumor mill - the bank is safe and sound. Nothing is wrong with people's accounts."
Mr. Ely said that the thrift appeared to be in good shape.
"Assuming that these financial report figures are reasonably accurate, this was a good, sound, solid bank," he said. "It was making good money and had a very low level of nonperforming assets. It has strong capital and a nice deposit base. I didn't see anything that gave me cause for alarm."
According to Mr. Riccobono, language and cultural differences compounded the problem - the thrift's customers are largely Chinese, and many do not speak English fluently. The language barrier interfered, for example, with regulators' attempts to assure customers that their money was insured by the FDIC for up to $100,000 in case the thrift failed.
Ultimately, Mr. Douglas said that runs, which were once common before the creation of deposit insurance but are now relatively rare, are hard to explain.
"If people thought rationally about it, they wouldn't worry," he said. "But bank runs are not entirely rational."
