Continental Illinois Bank and Trust Company. World Bank/IMF/Fed Seminar for Senior Bank Supervisors from Emerging Economies. William (Bill) Ryback

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1 Continental Illinois Bank and Trust Company World Bank/IMF/Fed Seminar for Senior Bank Supervisors from Emerging Economies William (Bill) Ryback

2 Mr. William (Bill) Ryback Currently a consultant 2007-May 2008, Special Advisor to the Financial Supervisory Service in Seoul, Korea , Deputy Chief Executive at the HKMA, responsible for banking supervision, policy and development During his 36 year career as bank supervisor in the USA, he served on many working groups and committees, including: Chairman, Association of Bank Supervisors of the Americas (ASBA) Chairman, EMEAP Working Group on Bank Supervision Member, Basle Committee on Banking Supervision 2

3 Key Issues Coordinating a bank exit strategy in a decentralized regulatory system that is characterized by multiple stakeholders; How the actions of the government and regulatory agencies can impact market perceptions; and Are banks really too big to fail or are they really only too big to liquidate? 3

4 U.S Banking Structure in 1984 Over 12,000 banks 5000 national 7000 state 250 > $1 BN 2/3 of banking assets under OCC supervision 200+ foreign bank branches or subsidiaries Most large banks in holding companies 4

5 US Depository Institutions Regulatory Structure FFIEC Regulatory Coordinating Body OCC FDIC FED OTS NCUA Federal Bank Regulatory Agencies State Bank Commission State S & L Commission State Credit Union Regulator State Bank Regulatory Agencies Legend: FFIEC OCC FDIC FED OTS NCUA Federal Financial Institutions Examination Council Office of the Comptroller of the Currency Federal Deposit Insurance Corporation Federal Reserve System Office of Thrift Supervision National Credit Union Administration 5

6 Components of a Financial Services Holding Company (HC) Holding Company National Bank State Bank Savings & Loan Insurance Underwriter or Agency Investment Bank (Broker Dealer) 6

7 Supervision of a Financial Services Holding Company (HC) Holding Company FED National Bank State Bank Savings & Loan Insurance Underwriter or Agency Investment Bank (Broker Dealer) OCC State Bank Commission/ FDIC or FED OTS or State S & L Commission/ FDIC State Insurance Supervisor SEC and State Securities Commission 7

8 Major Events 1971 Bailouts of Lockheed Corporation and Unity Bank of Boston 1972 Bailout of the Bank of the Commonwealth of Detroit 1975 Bailout of New York City 1976 Bailout of Penn Central 1978 Dun s Review names Continental Illinois one of the five best managed companies in the US 8

9 Major Events (cont d) Bailout of Chrysler 1980 Bailout of First Pennsylvania Bank of Philadelphia 1982 Penn Square Bank failure 1982 Fall of Continental Illinois share price from $25 to $ September: Bill Ryback at the OCC receives inspectors report warning of a deteriorating funding condition at Continental Illinois 9

10 Major Events (cont d) nd Quarter: Continental Illinois share price recovers to $ December: in an effort to deal with problem loans, Continental Illinois shrinks its loan portfolio 1983 New Executive Team appointed at Continental Illinois 1984 May: significant deposit runs begin at Continental Illinois 1984 May 8: Continental Illinois issues a press release denying any possibility of bankruptcy 10

11 Major Events (cont d) 1984 May 10: calls to the Fed for assistance. Todd Conover, Comptroller of the Currency, issues a press release in support of Continental Illinois. The release has the reverse effect 1984 May 11: Morgan Guaranty and other banks put together a line of credit to support Continental Illinois 1984 May 14, afternoon: it is clear that previous rescue attempts are not working 11

12 Activity I Analyze the Situation Red Group Question #1 Blue Group Question #2 Green Group Question #3 Yellow Group Question #4 12

13 Activity 1: Analyze the Situation 1. What public policy and competitive issues are created by a too big to fail approach to financial institutions? 2. Is Continental Illinois National Bank and Trust Company too big to fail? 13

14 Activity 1: Analyze the Situation 3. How important is recognizing differences among deposit bases in devising appropriate regulatory approaches? 4. Could earlier actions have prevented the Continental Illinois situation? 14

15 Table Group Discussions 30 Minutes 15

16 Full Group Presentations Presentation per group: 10 mins. Program leader feedback per group : 5 mins Minutes 16

17 Activity 2: Outline a Plan State your goal Identify options Identify key stakeholders and their needs, concerns, interests Record the three most important stakeholders 17

18 Group Discussions and Presentations Table group discussions : 30 minutes Presentation per group : 10 minutes Program Leader feedback: 5 minutes.. 60 Minutes 18

19 Activity 3 & 4: Stakeholder Management and Role Play You are about to prepare a written statement to be issued to the press. The statement should address the needs of your key stakeholders. Consider: What message you want to convey to your stakeholders? What message you think your stakeholders need to have? What difficulties you anticipate in using the press to get your message across? How will you deal with these difficulties? 19

20 Activity 3 & 4: Stakeholder Management and Persuading Others Group discussion followed by presentation Stakeholder Assignments Yellow The OCC Blue Green Red The FDIC The FED Major Banks 20

21 Running of Activity You have to prepare a persuasive written statement for the press. Discuss and prepare written statement: 30 mins. Presentation per group : 10 mins. Program Leader feedback per group : 5 mins. A total of 90 minutes will be allocated for group discussion and presentations. 21

22 Activity 5 Program Leader presentation of lessons learned and ensuing results 22

23 23 Thank You