Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (79)	9/13/1998 2:04:00 PM
From: eWhartHog	Read Replies (1) \| Respond to of 2794

Clark, You might be interested in a 1997 FDIC report on the failure of Continental Illinois. It is part of a longer report dealing with bank failures in the 1980s. fdic.gov [24 pages, requires Adobe Acrobat] John

To: Worswick who wrote (79)	9/14/1998 9:53:00 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 2794

Hi Clark, Sorry I didn't respond sooner but I promised myself I would take the weekend off from any serious conversations. I'm also scratching my head trying to come up with some military analogies for Continental Illinois : Back in the mid 80s when COntinental Illinois got in trouble the derivatives market was a lot less complicated than it is now. Conti's derivative exposure was for the most part in foreign exchange forwards, foreign exchange options, interest rate caps and futures. To the best of my memory the derivatives exposure did not contribute to their problems in any meaningful way and everything got settled just fine. So the derivatives market held up quite well, much to my annoyance I might add. I was mamnaging the Southwest Treasury operations for a major New York bank at the time. Continental Illinois was our biggest competition for derivatives business with the energy industry. We won more than our share of business from them but the business we lost to them we often lost by fractions of a basis point. It amazed me that people would deal with them for so little when the market knew the bank was in big trouble. In retrospect they turned out to have been right as they all got paid. For the record Continental Illinois got in trouble the old fashion way, bad loans. They were buying lots of loans from a small Oklahoma bank known as Penn Square Bank. When the story came out Penn Square turned out to be a pretty comic operation. There are several books on the sunject. Chase was caught up in this as well but no where near as bad. Henry