it certainly rattled some windows to make these loans
wrote a warning memo began to
A. "hot money" owners
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pull their funds out of Continental
B. but
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C. one Continental officer saw danger signs and
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to her superiors
D. To obtain the funds it needed
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The stability of the U.S. banking system is maintained by means of supervision and regulation, inspections, deposit insurance, and loans to troubled banks. For over 50 years, these precautions have prevented banking panics. However, there have been some close calls. The collapse of Continental Illinois Bank & Trusted Company of Chicago in 1984 did not bring down the banking system, but
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.
In the late 1970s, Continental soared to a leadership position among Midwestern banks. Parts of its growth strategy were risky, however. It made many loans in the energy field, including $1 billion that it took over from Penn Square Bank of Oklahoma City.
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, Continental relied heavily on short term borrowing from other banks and large 30-day certificates of deposit-"hot money", in banking jargon. At least
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, but the memo went unheeded. Although the Comptroller of the Currency inspected Continental on a regular basis, it failed to see how serious its problems were going to be.
Penn Square Bank was closed by regulators in July 1982. When energy prices began to slip, most of the $1 billion in loans that Continental had taken over from the smaller banks turned out to be bad. Other loans to troubled companies such Chrysler, international Harvester, and Braniff looked questionable. Seeing these problem,
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.