5 Lessons from America’s First Too-Big-To-Fail Bank

While most people associate the concept of "too big to fail" with the financial crisis of 2008-09, its origins actually date back to the 1984 government takeover of Continental Illinois National Bank and Trust. The nation's seventh-largest lender at the time, Continental Illinois found itself on the brink of failure after a series of strategic missteps caused creditors to pull funding from the bank.
Former Continental Illinois executive James McCollom recounted the Chicago bank's downfall in The Continental Affair: The Rise and Fall of the Continental Illinois Bank. What follows are five things I learned from the book, as well as from an FDIC analysis of the bank's demise:
1. Today's darlings are tomorrow's pariahsIn the years before Continental Illinois was nationalized, it was heralded as one of the best companies -- not just banks -- in the country. From an FDIC report noting the irony:

A 1978 article in Dun's Review pronounced the bank one of the top five companies in the nation; an analyst at First Boston Corp. praised Continental, noting that it had "superior management at the top, and its management is very deep"; in 1981, a Salomon Brothers analyst echoed this sentiment, calling Continental "one of the finest money-center banks going." Continental's share price reflected the high opinions of and performance by the bank. In 1979, an article noted that while the stocks of other big banking companies have hardly budged, "...Continental's ... has doubled in price -- rising from about $13 to $27 ... since the end of 1974, compared with a 10% gain for the average money-center bank."

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