Continental Illinois
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The Continental Illinois National Bank and Trust Company was at one time the seventh-largest bank in the United States as measured by deposits. In May 1984, the bank became insolvent due, in part, to bad loans purchased from the failed Penn Square Bank N.A. of Oklahoma—loans for oil producers and service companies and investors in the Oklahoma and Texas oil boom of the late 1970s and early 1980s. Due diligence was not properly conducted by John Lytle, an executive in charge of oil lending, and other leading officers of the bank. Lytle later pleaded guilty to a count of defrauding Continental of $2.25 million and receiving $585,000 in kickbacks for approving risky loan applications. Lytle was sentenced to three and a half years in a federal prison. The Penn Square failure eventually caused a substantial run on the bank's deposits once it became clear Continental Illinois was headed for failure. Large depositors withdrew over $10 billion of deposits in early May 1984.
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[edit] History
Continental Illinois can be traced back to two Chicago banks, the Commercial National Bank, founded during the American Civil War, and the Continental National Bank, founded in 1883. In 1910 the two banks merged to form the Continental & Commercial National Bank of Chicago with $175 million in deposits – a large bank at the time. In 1932 the name changed to the Continental Illinois National Bank & Trust Co.[1]
[edit] FDIC rescue
Continental Illinois was considered as "too big to fail" at that time by regulatory agencies. ("Fail" is what the FDIC does when a bank is insolvent, it "fails" the bank, and closes it.)[2] The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) feared a failure could cause widespread financial trouble and instability. To avert this, regulators prevented the loss of virtually all deposit accounts and even bondholders. The FDIC infused $4.5 billion to rescue the bank. A willing merger partner had been sought for two months but could not be found. Eventually, the board of directors and top management were removed.[3][4] Bank shareholders were substantially wiped out, although holding-company bondholders were protected. Until the seizure of Washington Mutual in 2008, the bailout of Continental Illinois was the largest bank failure in American history.
The term "too big to fail" was popularized by Congressman Stewart McKinney in a 1984 Congressional hearing, discussing the FDIC's intervention with Continental Illinois.[5] The term had previously been used occasionally in the press.[6]
[edit] Emergence from FDIC majority ownership
Continental Illinois was renamed Continental Bank. It continued to exist, with 80% of its shares owned by the federal government, until BankAmerica acquired it in 1994 to broaden its midwestern presence. In 2007, successor bank firm Bank of America has a retail branch and hundreds of back-office employees at Continental's former headquarters on South LaSalle Street in Chicago. Bank of America operates dozens of retail branches in the Chicago area and purchased LaSalle Bank in 2007 to expand its Chicago business and several lines of corporate and investment banking business.
Continental Illinois Venture Corporation, an investment subsidiary of the bank, formed a semi-independent private equity firm, CIVC Partners, with backing from Bank of America.
[edit] See also
[edit] References
- ^ Wilson, Mark R. (2004-2005). "Continental Illinois National Bank & Trust Co.". in Stephen R. Porter and Janice L. Reiff. (Electronic) Encyclopedia of Chicago. Chicago Historical Society/Newberry Library,University of Chicago Press. ISBN 0226310159. http://www.encyclopedia.chicagohistory.org/pages/2627.html. Retrieved 2009-10-28.
- ^ Wall, Larry D.; Peterson, David R. (1990). "The effect of Continental Illinois' failure on the financial performance of other banks". Journal of Monetary Economics 26 (1): 77–99.
- ^ FDIC’s Division of Research and Statistics (1997). "Continental Illinois and Too Big to Fail". History of the Eighties—Lessons for the Future. Washington, D.C.: FDIC. ISBN 0-9661808-0-1. http://www.fdic.gov/bank/historical/history/235_258.pdf.
- ^ "Continental Illinois National Bank and Trust Company". Managing the Crisis: The FDIC and RTC Experience, 1980–1994. Washington, D.C.: FDIC. 1998. ISBN 0-9661808-2-8. http://www.fdic.gov/bank/historical/managing/history2-04.pdf.
- ^ Dash, Eric (2009-06-20). "If It’s Too Big to Fail, Is It Too Big to Exist?". New York Times. http://www.nytimes.com/2009/06/21/weekinreview/21dash.html?partner=rss&emc=rss. Retrieved 2009-06-22.
- ^ Stern, Gary H.; Feldman, Ron J. (2004). Too big to fail: the hazards of bank bailouts. Brookings Institution Press. ISBN 0815781520.
