To celebrate its 150th anniversary, Banker & Tradesman is highlighting significant moments in the history of Massachusetts’ real estate and banking industries. To suggest a topic, email firstname.lastname@example.org.
What: Failure of the Bank of New England
When: Jan. 6, 1991
Amid the failure of savings and loan associations that began in the 1980s and less than a week after the start of a credit union crisis in Rhode Island, three of Bank of New England Corp.’s subsidiary banks – Bank of New England, Connecticut Bank and Trust, and Maine National Bank – were seized by the Federal Deposit Insurance Corp. At the time, it was the third-largest bank failure in U.S. history.
The $32 million-asset bank ended 1989 with $1.1 billion in losses. When BNE announced that it expected a $450 million fourth-quarter 1990 loss, depositors withdrew $1 billion from the bank on Jan. 4, 1991.
A U.S. General Accounting Office report later found that the bank’s dramatic growth and heavy concentration in commercial real estate loans should have triggered an expansive audit by the Office of the Comptroller of the Currency.
“My Treasury colleagues and I joined representatives of the [FDIC] and the Federal Reserve Board in a conference room on a Sunday morning. We came to understand that either the FDIC would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning – the first such run since 1933. We chose the first option, without dissent.”
— Now-Federal Reserve Chair Jerome Powell, speaking about the Bank of New England failure in a 2013 speech about “too big to fail” banks