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Bank+of+New+England+Failure+FDIC - CHAPTER 8 Bank of New...

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CHAPTER 8 Bank of New England Corporation Name of Institution: Bank of New England Corporation Subsidiary Banks: Bank of New England, N.A., Boston, Massachusetts Connecticut Bank & Trust Company, N.A., Hartford, Connecticut Maine National Bank, Portland, Maine Date of Resolution: January 6, 1991 Resolution Method: Formation of Bridge Banks Date of Resolution: July 12, 1991 Resolution Method: Sale of Bridge Banks by Dissolution and Purchase and Assumption Transaction Introduction The January 6, 1991, failure of the Bank of New England (BNE), Boston, Massachu- setts, and its two sister banks, Connecticut Bank & Trust Company (CB&T), Hartford, Connecticut, and Maine National Bank (MNB), Portland, Maine, was the largest since the 1989 collapse of MCorp and the 1988 collapse of the First RepublicBank Corpora- tion, both of Dallas, Texas. All three banks were owned by Bank of New England Cor- poration (BNE Corp.). The failures received a lot of news media attention because 45 credit unions without federal deposit insurance had been closed in nearby Rhode Island on New Year’s Day. 1 In addition to being very large, the resolution of the BNE Corp. banks is notable because the FDIC, considering the region’s financial conditions, decided to protect all depositors (except those affiliated with BNE Corp.), including those whose total depos- its exceeded the $100,000 insurance limit. Of the approximately $19.1 billion on deposit in the three banks, more than $2 billion were in accounts larger than $100,000. Then-FDIC Chairman L. William Seidman stated, “It was clear to us that to protect the stability of the system, we should protect all depositors.” 2 1. L. William Seidman, Full Faith and Credit: The Great S&L Debacle and Other Washington Sagas (New York: Times Books, 1993), 165. 2. Stephen Labaton, “U.S. Is Taking Over a Group of Banks to Head Off a Run,” The New York Times ( January 7, 1991), A1.
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636 MANAGING THE CRISIS The FDIC again used its bridge bank powers in the resolution of Bank of New England, Connecticut Bank & Trust Company, and Maine National Bank, and the FDIC used its cross guarantee assessment authority to assess MNB for the FDIC’s costs associ- ated with the BNE failure. As part of the transaction, the FDIC injected $750 million of capital into the bridge banks. A small trust company, BNE Trust Company, West Palm Beach, Florida, that was also owned by the holding company, BNE Corp., did not fail. General Description of the Bank BNE, based in Boston, was one of the largest banks in the commonwealth of Massachu- setts and at the time of its failure was the 33rd largest bank in the United States. CB&T, based in Hartford, was the second largest bank in the state of Connecticut. These two banks, along with a sister bank, MNB, had $21.8 billion in total assets and 117 branch locations throughout New England. They also held more than $19 billion in deposits at the time of their failure.
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