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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Paul Kern who wrote (95580)	7/12/2008 5:24:53 AM
From: RockyBalboa	Read Replies (1) \| Respond to of 110194

Here is an amazing account from the fdic in re. continental bank. Back then they coined the term Too big to fail (TBTF): fdic.gov at the epicenter: After Penn Square Optimism about Continental?s condition ended abruptly in July 1982, when Penn Square Bank, N.A., in Oklahoma failed.19 Penn Square had generated billions of dollars in extremely speculative oil and gas exploration loans, many of which were nearly worthless, and Continental had purchased a monumental $1 billion in participations from Penn Square. While Continental and the other ?upstream? banks pressed regulators to find a way to prevent a deposit payoff of Penn Square, a course that would also have been preferred by both the Federal Reserve and the OCC, the larger banks involved refused either to inject money into Penn Square or to waive their claims on the bank. .......... Now is the history being rewritten by replacing penn sq. with Indymac? Theres insured deposits and theres other debt with hardly any value. ................ The Bank Run and Government Assistance The deterioration in Continental?s condition and earnings, coupled with its reliance on the Eurodollar market for funding, helped make the bank vulnerable to the high-speed electronic bank run that took place in May 1984. Among the factors that caused the run to start and made stopping it difficult, rumor was prominent. 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, stories circulated that a Japanese bank was interested in acquiring Continental, or that the OCC had asked other banks and securities firms to assist Continental.31 Anxious overseas depositors began to shift their deposits away from Continental, and it was reported that Chicago?s Board of Trade Clearing House had done the same. In an effort to calm the situation, the Comptroller of the Currency, departing from the OCC?s policy of not commenting on individual banks, took the extraordinary step of issuing a statement denying the agency had sought assistance for Continental and noting 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 rumors about Continental.32 The run, however, continued, and by Friday May 11, Continental had had to borrow $3.6 billion at the Federal Reserve?s discount window to make up for its lost deposits.33