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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.

  1. 1976

    Commercial Lending Growth Strategy

    Pivot / growth strategy

  2. 1981

    Penn Square Energy Participations

    Partnership / loan purchase (participations)

  3. 1982

    Penn Square Failure and Funding Squeeze

    Failure (of a key counterparty) / funding crisis and management response

  4. 1984

    July Permanent FDIC Assistance

    Bailout / restructuring (open-bank assistance; effective nationalisation)

  5. 1984

    May Run and Interim Assistance

    Bank run / bailout (open-bank assistance)

  6. 1984

    Too Big to Fail Hearing

    Regulatory and political response (congressional inquiry)

  7. 1987

    Theobald Restructuring and FDIC Exit

    Restructuring / re-privatisation

  8. 1994

    Sale to BankAmerica

    Acquisition (as target)