Continental Illinois National Bank and Trust Company

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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.

Contents 1 FDIC rescue 2 Emergence from FDIC majority ownership 3 See also 4 References

[edit] FDIC rescue

Continental Illinois was considered as "too big to fail" at that time by regulatory agencies. 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. 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.

[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

• Too Big to Fail policy
• Banking regulation
• Bank condition

[edit] References

• Continental Illinois writeup at FDIC site
• Information about Continental Illinois from scripophily.net