Failure of Continental Illinois Bank
International Business School
Continental Illinois Bank Failure
The failure of Continental Illinois National Bank and Trust Company (CINB)
One of the most famous features on the landscape of the banking crisis in 1980s was the crisis involving the Continental Illinois National Bank and Trust Company in May 1984, which still is one of the largest bank failures in U.S. banking history. The collapse of CINB was a significant event in banking history that had a moral for both bank risk managers and regulators. It showed how quickly the exposure of credit problems at a well regarded bank could turn into a liquidity problem that danger not only the survival of the bank but also the financial system in the US.
Economic and financial environment at the time of the failure
CINB was born from a merger of two banks located in Chicago, the Commercial National Bank and the Continental National Bank. In 1910 when these two banks merged they had $175 million in deposits, a large amount at that time. In 1984, it was the 6th largest bank in the U.S., with nearly $40 billion in assets. In the mid 1980s, the US financial system faced harsh problems. For example, three major organizations, Lockheed Corporation, Chrysler Corporation, and New York City required government aid, bailout, to avoid financial crisis. This economic disorder led to troubles in financial organizations. Between 1984 and 1985 there were nearly 200 bank failures. This extraordinary number of collapsing banks raised complicated questions for bank supervisors and other public policy bodies. During the 1980s the American business society began to see itself as failing to keep speed with developments elsewhere such as in Japan. Japanese economy moved ahead of the American economy in some parts. The failure of CINB began when Japanese traders decided not to roll-over their inter-bank placements with Continental.”That was the main problem for Dave Kennedy when he decided the Continental would have to become a
Continental Illinois Bank Failure
The failure of Continental Illinois National Bank and Trust Company (CINB)
One of the most famous features on the landscape of the banking crisis in 1980s was the crisis involving the Continental Illinois National Bank and Trust Company in May 1984, which still is one of the largest bank failures in U.S. banking history. The collapse of CINB was a significant event in banking history that had a moral for both bank risk managers and regulators. It showed how quickly the exposure of credit problems at a well regarded bank could turn into a liquidity problem that danger not only the survival of the bank but also the financial system in the US.
Economic and financial environment at the time of the failure
CINB was born from a merger of two banks located in Chicago, the Commercial National Bank and the Continental National Bank. In 1910 when these two banks merged they had $175 million in deposits, a large amount at that time. In 1984, it was the 6th largest bank in the U.S., with nearly $40 billion in assets. In the mid 1980s, the US financial system faced harsh problems. For example, three major organizations, Lockheed Corporation, Chrysler Corporation, and New York City required government aid, bailout, to avoid financial crisis. This economic disorder led to troubles in financial organizations. Between 1984 and 1985 there were nearly 200 bank failures. This extraordinary number of collapsing banks raised complicated questions for bank supervisors and other public policy bodies. During the 1980s the American business society began to see itself as failing to keep speed with developments elsewhere such as in Japan. Japanese economy moved ahead of the American economy in some parts. The failure of CINB began when Japanese traders decided not to roll-over their inter-bank placements with Continental.”That was the main problem for Dave Kennedy when he decided the Continental would have to become a
References: http://www.fdic.gov/bank/historical/history/235_258.pdf http://www.sciencedirect.com/science/article/pii/030439329090032Y James P. McCollom, (1987). The Continental Affair.