|Industry||Bank holding company|
|Fate||Insolvency. The bank was seized by the Federal Deposit Insurance Corporation and ultimately sold to BankAmerica (now Bank of America).|
|Successor||Bank of America|
|Headquarters||Chicago, Illinois, United States|
The Continental Illinois National Bank and Trust Company was at one time the seventh-largest commercial bank in the United States as measured by deposits with approximately $40 billion in assets. In 1984, Continental Illinois became the largest ever bank failure in U.S. history, when a run on the bank led to its seizure by the Federal Deposit Insurance Corporation (FDIC). Continental Illinois retained this dubious distinction until the failure of Washington Mutual in 2008 during the financial crisis of 2008, which ended up being over seven times larger than the failure of Continental Illinois.
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 was changed to the Continental Illinois National Bank & Trust Co.
In May 1984, Continental Illinois became insolvent due, in part, to bad loans purchased from the failed Penn Square Bank N.A. of Oklahoma—loans for oil & gas producers and service companies and investors in the Oklahoma and Texas oil & gas boom of the late 1970s and early 1980s. Due diligence was not properly conducted by John Lytle, an executive in the Mid-Continent Division 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.
Due to Continental Illinois' size, regulators were not willing to let it fail. 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. According to Daniel Yergin in The Prize: The Epic Quest for Oil, Money, and Power (1991), "The Federal Government intervened, with a huge bail-out–$5.5 billion of new capital, $8 billion in emergency loans, and, of course, new management." 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.
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. The term had previously been used occasionally in the press.
Emergence from FDIC majority ownership
Continental Illinois was renamed Continental Bank. It continued to exist, with the federal government effectively owning 80% of the company's shares and having the right to obtain the remainder (ultimately exercised in 1989) if losses in the rescue exceeded certain thresholds. The federal government gradually disposed of its ownership interests in Continental Bank, completing the process on June 6, 1991. In 1994, Continental Bank was acquired by BankAmerica in order to broaden the latter's 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.
Silver dollar hoard
Part of the bank's required reserves were held in silver dollars, which provided the opportunity to profit from a rise in silver prices. The hoard, estimated to be 1.5 million silver dollars, was sold to a coin dealer to raise money in the early 1980s.
- Dash, Eric and Sorkin, Andrew Ross (September 26, 2008). "Government Seizes WaMu and Sells Some Assets". Business (The New York Times). p. A1. Retrieved 2008-09-26.
- "Washington Mutual sold to JPMorgan Chase after FDIC seizure". KING 5 TV. 2008-09-26. Retrieved 2008-09-26.[dead link]
- DeSilver, Drew (2008-09-26). "Feds seize WaMu in nation's largest bank failure". Seattle Times. Retrieved 2008-09-26.
- Wilson, Mark R. (2004–2005). "Continental Illinois National Bank & Trust Co.". In Porter, Stephen R. and Reiff, Janice L. (eds.). Encyclopedia of Chicago. Chicago Historical Society/Newberry Library, University of Chicago Press. ISBN 0-226-31015-9. Retrieved 2009-10-28.
- Gorner, Peter. "Bank Deal Tied To Pope's Death?" Ottawa Citizen (June 12, 1984)
- Some of this is detailed in the books Funny Money by Mark Singer (New York: Knopf, 1985, ISBN 0671502484) and Belly Up: The Collapse of the Penn Square Bank by Philip Zweig (New York: Crown, 1985, ISBN 0517557088)
- 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. doi:10.1016/0304-3932(90)90032-y.
- Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power New York: Simon & Schuster, 1991. ISBN 0-671-50248-4. p.732
- Division of Research and Statistics (1997). "Continental Illinois and "Too Big to Fail"". History of the Eighties — Lessons for the Future (PDF). Washington, D.C.: Federal Deposit Insurance Corporation. ISBN 0-9661808-0-1.
- "Continental Illinois National Bank and Trust Company". Managing the Crisis: The FDIC and RTC Experience, 1980–1994 (PDF). Washington, D.C.: Federal Deposit Insurance Corporation. 1998. ISBN 0-9661808-2-8.
- Dash, Eric (2009-06-20). "If It’s Too Big to Fail, Is It Too Big to Exist?". New York Times. Retrieved 2009-06-22.
- Stern, Gary H.; Feldman, Ron J. (2004). Too big to fail: the hazards of bank bailouts. Brookings Institution Press. ISBN 0-8157-8152-0.
- Professional Coin Grading Service See paragraph "The Continental-Illinois Bank Hoard"
- Highfill, John W. The Comprehensive U.S. Silver Dollar Encyclopedia ISBN 0-9629900-0-0
- Media related to Continental Illinois Bank Building at Wikimedia Commons