Finance · Profile from Finance Research Companion
Continental Illinois National Bank and Trust Company
A Chicago money-centre bank that ran a deliberate growth plan from the mid-1970s and by 1981 was the largest commercial and industrial lender in the United States and its seventh-largest bank. Illinois law limited it to a single office, so it funded that growth with large certificates of deposit, federal funds and Eurodollar money rather than retail deposits. It also bought about $1bn of speculative oil-and-gas loans from a small Oklahoma lender, Penn Square Bank. When Penn Square failed in July 1982, Continental's credibility went with it. In May 1984 its wholesale funders ran, taking out about 30% of its funding in ten days. Regulators then guaranteed every depositor and general creditor, injected capital and took about 80% ownership. It was the largest bank rescue in US history until 2008. At a congressional hearing that September a congressman gave the episode its permanent name: "too big to fail". Continental was nursed back to health, returned to private hands by 1991 and sold to BankAmerica in 1994. Its legacy is the vocabulary and the law of bank rescue: the least-cost rule and the systemic-risk exception of 1991, which were used again in 2008 and 2023.
At a glance
- Founded
- Roots in Commercial National Bank (Civil War era) and Continental National Bank (1883); merged 1910 as Continental & Commercial National Bank of Chicago; renamed Continental Illinois National Bank and Trust Company of Chicago in 1932
- Builders
- Roger E. Anderson (chairman and CEO from the 1970s to early 1984), who set the commercial-lending growth strategy; after the rescue, John Swearingen (holding company) and William Ogden (bank), then Thomas Theobald (from 1987)
- Headquarters
- 231 South LaSalle Street, Chicago
- Ownership / structure
- Public holding company, Continental Illinois Corporation (CIC), owner of the national bank (CINB). FDIC owned ~80% after July 1984 and later exercised rights over the rest; last FDIC-held shares sold June 1991. Renamed Continental Bank Corporation (late 1980s, verify year)
- Regulators
- Office of the Comptroller of the Currency (bank); Federal Reserve (holding company, discount window); FDIC (insurer, then owner)
- Scale
- Bank assets ~$21.4bn (1976) → ~$45.2bn (1981) → ~$40.7bn (end-1983); domestic C&I loans ~$5.1bn → ~$14.3bn (1976–81) (FDIC, History of the Eighties)
- Funding mix
- Core deposits fell from ~30% of deposits (1977) to just under 20% (1981); insured deposits only ~15% of liabilities at the 1984 rescue (Federal Reserve History)
- Government support
- 1984: $2bn of subordinated notes ($1.5bn FDIC, $0.5bn banks), Fed discount-window lending (~$3.6bn by May 11, larger later), guarantee of all creditors; July 1984 permanent plan: FDIC took ~$4.5bn (face) of bad loans and put in $1bn of capital for ~80% ownership. Estimated final FDIC cost ~$1.1bn (FDIC, 1997)
- End of independence
- Acquired by BankAmerica Corporation in 1994 (~$1.9bn in cash and stock; renamed Bank of America Illinois)
- Signature moves (incl. failures)
- Commercial-lending growth strategy (1976–81); Penn Square energy participations (1981–82); the Penn Square failure and funding squeeze (1982–83); the May 1984 run and interim assistance; the July 1984 permanent FDIC rescue; the "too big to fail" hearing (1984); Theobald's restructuring and the FDIC's exit (1987–91); sale to BankAmerica (1994)
8 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
1976
Commercial Lending Growth Strategy
Pivot / growth strategy
1981
Penn Square Energy Participations
Partnership / loan purchase (participations)
1982
Penn Square Failure and Funding Squeeze
Failure (of a key counterparty) / funding crisis and management response
1984
July Permanent FDIC Assistance
Bailout / restructuring (open-bank assistance; effective nationalisation)
1984
May Run and Interim Assistance
Bank run / bailout (open-bank assistance)
1984
Too Big to Fail Hearing
Regulatory and political response (congressional inquiry)
1987
Theobald Restructuring and FDIC Exit
Restructuring / re-privatisation
1994
Sale to BankAmerica
Acquisition (as target)