The fate of Gorgas Savings Association in Philadelphia and 25 other tiny, privately insured Pennsylvania building and loans is in Gov. Tom Ridge's hands.

A bill he is expected to sign this month would require Federal Deposit Insurance Corp. for all of the state's financial institutions. That could spell the end for those such as Gorgas, many of which cannot get or afford such insurance.

"As far as we are concerned, they are putting us out of business for no good reason," said John Kelly Jr., the managing officer of 91-year-old Gorgas.

Building and loans-the kind of operation the Bailey family runs in the movie "It's a Wonderful Life"-have been around since before the turn of the century. At one time Pennsylvania alone had 4,600 of them. But now no other state lets banks or thrifts to operate without FDIC supervision, according to the Conference of State Bank Supervisors.

The survivors range from $370,000 to $18 million of assets. They offer small mortgages and old-fashioned savings instruments, such as serial installment accounts.

Gorgas, which Mr. Kelly's father once ran, may be typical. It has $3 million of assets and operates out of a law office. Mr. Kelly is one of only two employees, and there is only one computer.

Pennsylvania's building and loans are backed by the Pennsylvania Savings Association Insurance Corp., a private entity the state created in 1979. But regulators have argued that private insurance is less secure than federal deposit insurance.

The measure Gov. Ridge is expected to sign would give building and loans 30 months to get FDIC insurance, merge with an institution that already has it, or liquidate.

"We have seen what can happen when private banks fail," said Mike Wishnow, a spokesman for the state's Department of Banking. "Right now happens to be a good time in the banking industry, but we do not want people at risk when that economic tide turns."

But qualifying for FDIC insurance is not easy for most building and loans. For one thing, the agency typically requires at least $2 million of capital. And even if they could qualify, some smaller building and loans cannot justify the expense of FDIC regulation.

About the only people who opposed the legislation are building and loan operators.

"We have never gotten a call from anyone expressing an opinion either way," said James R. Biery, executive vice president of the Pennsylvania Bankers Association.

Even some building and loan executives say they understand the state's reasoning.

John A. Wilson, president of $1 million-asset Hometown Building and Loan Association in Philadelphia, said he will be sorry to see the private backing gone. But he added, "I do not want to use my tax money to support a collapsed financial institution."

Hometown plans to merge with other building and loans or with an FDIC- insured thrift.

Others, however, are folding up their tents. Philadelphia's Chestnut Street Building and Loan is in talks to sell its mortgage portfolio, which would put the $2.2 million-asset institution out of business.

As for Gorgas, Mr. Kelly said he is not sure what will become of it.

"We could merge, we could liquidate, or maybe go to court," he said. "We have a lot we have to look at."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.