Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/18/84; site brl-sem.ARPA Path: utzoo!linus!philabs!cmcl2!seismo!brl-tgr!brl-sem!jcp From: jcp@brl-sem.ARPA (Joe Pistritto ) Newsgroups: net.invest,net.misc Subject: Re: "World Banking Crisis" -- what is it? Message-ID: <336@brl-sem.ARPA> Date: Thu, 30-May-85 12:38:47 EDT Article-I.D.: brl-sem.336 Posted: Thu May 30 12:38:47 1985 Date-Received: Sat, 1-Jun-85 10:56:46 EDT References: <11154@brl-tgr.ARPA> Reply-To: jcp@brl-semtritto .ARPA (Joe Pistritto ) Distribution: net Organization: Ballistic Research Lab Lines: 43 Xref: linus net.invest:624 net.misc:6541 In article <11154@brl-tgr.ARPA> wmartin@brl-tgr.ARPA (Will Martin ) writes: >I just watched the PBS "Frontline" program on the Continental Illinois Bank >debacle and federal bail-out. (This was aired locally [St. Louis] on Tuesday, >28 May.) It was an interesting and informative program, but there was one >aspect that was infuriating. Repeatedly, throughout the program, it was >stated that Continental was saved by Federal intervention (and extraordinary >measures taken to protect the depositors; more than was done for those at >Penn Square Bank in OK, for example) in order to prevent a "World Banking >Crisis". This phrase was repeated over and over. It was never defined. > >Will Martin > The two main reasons that Continental was such a big deal was not its depositors (due to restrictive Illinois banking laws, it was limited to a small number of deposit holders), but the sheer size of its loan interactions with other money center banks. When it failed, Continental Illinois was (I believe) the nations 7th largest bank, (which would make it about 40th in size in the entire world!). It was the largest bank outside the money center catagory, and had huge commercial loan accounts with other banks, including such well knowns as Chemical Bank, Citibank of New York, and Chase Manhattan. At the time, the South American debt crisis was putting a good deal of pressure on these banks, declaring the Continental loans non-performing at the same time could have forced one of these other banks to the brink of insolvency. (Then the stock market crashes, and millions of people get laid off, etc., etc.). You really don't want to think about a failure by two or more of the top 10 banks... It was much cheaper to 'head the problem off at the pass', by reorganizing Continental, even spending some federal money to do so, (its lots cheaper than unemployment...). In most other countries, the central banks are either nationalized or government supported, so equivalent mechanisms exist there. All in all, I'd rather have the Feds keep an eye on things WITHOUT running the banks, unless things get too bad and start to fall over a cliff. On the other hand, my home state of Maryland just had a banking crisis with its Savings and Loan institutions, without federal intervention, by the state government. Mighty inconvenient for the depositors though, who were limited to withdrawing $1K/month for a while. Screwed up a lot of real estate closings, etc., and you STILL can't pass a check from a Savings and Loan here. Makes me glad I keep my money in real banks... -JCP-