Continental Illinois National Bank and Trust Company

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 the Oklahoma and Texas oil boom of the late 1970s and early 1980s. Due diligence was not properly paid by, among others, John Lytle, an executive in charge of oil lending. Lytle later pleaded guilty to a count of defrauding Continental of $2.25 million and pocketing $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.

Continental Illinois was considered as "too big to fail" at that time by regulatory agencies. The Federal Reserve and 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 financial crisis of 2008, Continental Illinois was the largest ever U.S. bank to be bailed out by the FDIC and Federal Reserve.

The Continental Illinois continued to exist, with some 80% of its shares owned by the federal government, until BankAmerica acquired it in 1994 to broaden their Midwestern presence. In 2007, successor 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, Illinois. BofA operates dozens of retail branches in the Chicago area and purchased LaSalle Bank in 2007 to expand their Chicago business further, as well as several lines of corporate and investment banking business.

Continental Illinois Venture Corporation, an investment subsidiary of the bank, has formed a semi-independent private equity firm, CIVC Partners, with backing from Bank of America.

ee also

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

References

* [http://www.fdic.gov/bank/historical/history/235_258.pdf#search='Continental%20Illinois' Continental Illinois writeup at FDIC site]
* [http://www.scripophily.net/coilco.html Information about Continental Illinois from scripophily.net]