Show Depositors wait ta racmr their savings freer Federal Depesit lasaraace Carp aatdda failed Miand bank I ‘ " I HE NATION’S LARGEST banks may seem as impressive and solid as the sleek office tow en that house the headquarters of their corporate empires But a growing number of them balance delicately on the edge of failure And the collapse of one megabank with its intricate ties to other big banks and to hundreds of smaller ones could cause a chain reaction of failures and panic that would bring down the entire banking system Here's the story of how it almost happened— when Continental Illinois National Bank Trust Co of Chicago one of die most mega of the megabanks came within a few hours of collapse The Continental saga began on July 7 1976 when Chairman Roger E Anderson announced that Continental had embarked on a strategy calculated to make it one of the three biggest business lenders in the United States Proud words Yet Continental outstripped LJ k BY even its own boast By 1981 Continental was one of the top corporate lenders and the sixth-large- st commercial bank in the country But Continental 's astonishing growth also contained the seeds of its destruction Many of its loans were connected to the energy boom of the late 1970s But the subsequent oil glut had brought the great expectations crashing down One of the highest fliers in the eneigy-financin- g heaven was Penn Square Bank of Oklahoma— and Continental was intricately involved with Penn Square So when the Oklahoma bank went belly-u- p in 1982 Continental was stuck with a bundle of uninsured loans it had made to Penn Square in the heady days of the energy boom The collateral— high hopes and gear— was worthless rusting In February 1983 federal regulators from the FDIC and the Comptroller of the Currency's office met for a secret briefing on Continental’s condition Meeting behind closed doors in downtown Washington everyone agreed on the diagnosis: too many sour loans But JACK ANDERSON AND there was on the prognosis Then on May 10 1984 a crisis loomed: Continental was being hit by a silent but devastating run by overseas investors Using computer terminals in Europe and Japan they were withdrawing large uninsured deposits from Continental because of whispers that the bank was about to fail Without so much as a line of anxious depositors outside its doors Continental was being drained by a $15 billion run With almost S40 billion in assets and offices in 14 states and 29 foreign countries Continental was too big to collapse without terrible repercussions More than 2000 small banks for example had nearly S6 billion on deposit in Continental—all of it uninsured More than 120 smaller banks would have gone down with Continental And some of its fellow Big 10 banks also were vulnerable So clearly the federal rescue team could not let Continental sink One emergency meeting followed another through the next day a Friday and throughout the weekend On Tuesday May 13 Paul Volcker then chairman of die Federal Reserve reached William Isaac the dynamic former chairman of the FDIC on his car telephone “It’s heating up" Volcker said tersely “It’s getting worse Can you come in and see me right away?” At the Fed Isaac determined that Continental would need S2 billion Pronto Donald Regan then Treasury Secretary agreed but had a political suggestion: Get some of the major banks to contribute to the S2 billion instead of making it strictly a federal government intervention Easier said than done At a hush-hus- h meeting in New York on May 16 the private bankers quarreled At one extreme Manufacturers Hanover 6 didn't think the FDIC should be involved at all It should be the banks' responsibility At the other extreme Citibank opposed any bailout by anyone Continental should swim or sink By noon that day there was apparent agreement on a joint venture The FDIC would put up SI3 billion the banks would ante up the rest arid the public The failure of one big bank could bring down many others MICHAEL HU 14 B I N 8 SEFTEMKR 20 1M7 T E NUUK I N MAGAZINE |