Continental Illinois: The Making of a Liquidity Crisis

The article Continental Illinois: The Making of a Liquidity Crisis, demonstrates the inconsistencies of the on-line(prenominal) regulatory policy in effect by the federal prevail System, which in turn has hurt sticks handle Continental Illinois national Bank and Trust Co., who had riddles with bad loans that they produced in the previous(predicate) 80s, which lowered earning drastically and decreased the market value of bank equity, undermined customer confidence, and brought approximately net deposits outflows. By the end of 1984, Continentals deposits had shrunk by almost 12 meg and the bank had been effectively nationalized. The problem started in the other(a) 70s when managements pursuit of growth through raptorial alter. The chairman of Continental, Roger Anderson, believed that Continental was one of the top three domestic help lender in the U.S. Its loans where increase at an extremely sporting come rate of 19.8%, while peer banks where only growing at 14. 7%. However, the reported profits where disguising serious earnings and fluidness problems in funding and loan growth. Its net reliance on intent money was almost double that of comparable banks, which was indicated by the liquidity measure net of these volatile liabilities. Due to the aggressive modify in the volatile economic environment, poor quality of loans where pay back out. The Continental had heavy loan exposure to problem companies manage Braniff, International Harvester, Nucorp Energy, and Wickes.

Lending in this area coincided nicely with the embrocate booms rising prices, and profitable-looking borrowers, which included major oil companies, wildcat drillers, and s uperannuated field servicing operators. Cont! inental had serious problems when the oil prices fell. By 1981, Continental had purchased more than $600 million in loan participants from Penn trot Bank. When Penn Square failed in July 1982, Continental held more than $1 one thousand million in loans which was originated by Penn Square. he failure of Penn... If you want to beat a full essay, order it on our website: OrderEssay.net

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