Solutions and Assistance by the Government

As the debtors surrounding Continental Illinois began to default in the early 1980's the bank was forced to look to foreign finance markets to continue to have liquidity for their depositors. Banking conditions continued to deteriorate and by 1984 at the lowest point the government was forced to take action. When they could not find another bank willing to merge, the goverment took matters into their own hands and purchased 4.5 billion dollars in bad loans from Continental Illinois. The FDIC then managed the debt under contract. The Federal Reserve bailed out the struggling bank and provided liquidity.