The Famous Bank Run

In May of 1984, Continental Illinois endured the worst bank run in the history of the company. Previous financial deterioration and the heightened reliance for funding from the Eurodollar market helped to make Continental as vulnerable as it was the high-speed electronic bank run that eventually ensued.

On May 9, Reuters asked Continental to comment on rumors that the bank was on the road to bankruptcy; the bank condemned the story as “totally preposterous”. In addition to the previous rumor, stories started to circulate that a Japanese bank was interested in acquiring Continental, and that the OCC had asked other banks and securities firms to assist Continental. These rumors therefore caused anxious overseas depositors to begin to shift their deposits away from Continental. Chicago’s board of Trade Clearing House had been rumored to be doing the same causing mass panic within the depositors who had yet to remove their assets.

In an effort to calm the situation, the Comptroller of the Currency, departing from the OCC’s policy of not commenting on individual banks and took the extraordinary step of issuing a statement denying that the agency had sought assistance for Continental and noted that the OCC was “unaware of any significant changes in the bank’s operations, as reflected in its published financial statements, that would serve as the basis” for these rumors.

After two days of attempting to slow the run, Continental found itself at the Federal Reserves discount window borrowing $3.6 Billion in order to make up for its lost deposits. During the following weekend, Continental attempted to solve its problems by creating a $4.5 Billion loan package that was supported by 16 different banks. While this attempt ultimately failed to hold off the depositors, it signaled to the Fed that it was time to step in.