"Collapse" is the word most often attached to the Bank of Credit and Commerce International (BCCI). On the public record, it is the wrong word.
Two ways a bank can end
A bank can come to an end in one of two ways. It can fail: its money runs out, it stops paying depositors and it defaults in the market. Or it can be closed: its regulators decide it should stop trading, whether or not it can still pay.
The first is a collapse. The second is a decision. BCCI's end on Friday 5 July 1991 was the second.
Where the labels came from
Within months of the closure, BCCI was being described as "collapsed", and one of the first books about it carried the one-word title Bankrupt. Words used in the first weeks after an event tend to stick. But "bankrupt" describes a bank whose money has run out and whose owners cannot or will not make good the shortfall. As this page sets out, BCCI was still paying, and its majority shareholder was committing billions to support it, when it was closed.
Four signs of a collapse, and what the record shows
1. Depositors go unpaid.
BCCI was meeting its obligations up to the moment it's doors were closed to the public. In the U.K., at about 1.00 pm London time, the Bank of England led a coordinated move with some European central banks to take control of BCCI's offices and assets. Abu Dhabi, the majority shareholder, and the UAE Central Bank were not consulted. The bank did not stop paying. It was stopped.
2. The owners walk away.
BCCI's owners, the Abu Dhabi majority shareholders, did the opposite. In April 1990 the Government and Ruling Family of Abu Dhabi took about three-quarters of the bank "with the full support of the Bank of England". Abu Dhabi guaranteed BCCI's losses, which allowed the auditors to sign the 1989 accounts. By mid-1991 it had committed about $4 billion to a restructuring. The day before the closure, it sent more than $600 million to the bank.
3. The authorities say the bank can no longer pay.
No such statement was made. The Chancellor, Norman Lamont, told the UK Parliament that the Bank of England had decided BCCI "should be closed down" after receiving a Price Waterhouse report. That was a regulatory judgment, not a finding that the money had run out. The report was still a draft. The Price Waterhouse partner, Christopher Cowan, considered there was "not very much new in it". In his view, its impact came from bringing existing threads together in one place.
4. There is no rescue plan.
There was one. According to a US Senate report, the Bank of England had "tentatively agreed" a restructuring with BCCI and its Abu Dhabi owners, and this was "reversed abruptly" in late June 1991. The Report into the Supervision of BCCI by Lord Justice Bingham (the Bingham Report) records communications in which US authorities objected to the restructuring and indicated they would act against BCCI if the Bank of England did not.
On all four counts, the record does not describe a collapse.
The "pay everyone today" test
Some argue BCCI could not have repaid all its depositors at once. No bank can. Banks lend out the deposits they accept and also rely on the interbank market to fund and, in the last resort, the central bank, to cover short-term needs, including loans. Even today, the world's largest banks hold cash equal to only about 15–37 per cent of their customer deposits. The companion page, Did BCCI Collapse?, sets out the figures. By that test, every bank is permanently short of funds to meet customers withdrawal of deposits all at one time. What decides the outcome is whether someone is allowed to stand behind the bank. In BCCI's case, its wealthy owners were willing to do so.
Later reports found fraud and heavy losses in BCCI's books. Whether the bank owed more than it owned remains disputed. Either way, that is a separate question. A shortfall that an owner has committed to cover is a reason to restructure. It is not a collapse.
Time given to others
In the same era, banks with deep losses were given time:
BCCI's Abu Dhabi majority shareholders were committing about $4 billion at the start, and no public money was sought.
What the ending itself shows
By November 2008, UK creditors had received about 84 per cent of their claims, with a further 2.5 per cent to come. The recoveries included "a sizeable payment from the bank's majority shareholders" as well as the realisation of BCCI's own cash and funds held with other banks. That was after worldwide liquidation costs that one UK MP put at more than $1.2 billion. That is not the outcome you would expect from a bank that had simply run out of money.
Why the word matters
"Collapse" places the cause inside the bank. "Closure" places it with a decision, and a decision has reasons that can be examined. Why was a restructuring agreed in principle and then set aside within days? Why act on a draft report rather than a final one? Why were other banks given time when BCCI was not? This page does not answer those questions. It asks only that BCCI's ending be described accurately, so that readers can look into them for themselves.
Also read:
Sources
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Hansard, UK House of Commons, 19 July 1991: Bank of Credit and Commerce International
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Hansard, UK House of Commons, 20 November 2008: Bank of Credit and Commerce International
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Hansard, UK House of Lords, 20 June 1985: Johnson Matthey Bankers
- The BCCI Affair, US Senate Committee on Foreign Relations, 1992, ch. 12 and ch. 14
- Inquiry into the Supervision of the Bank of Credit and Commerce International (Bingham Report), 1992, para. 2.445
- Kochan, N. and Whittington, B., Bankrupt: The BCCI Fraud, 1991
- Federal Reserve History: Latin American Debt Crisis of the 1980s; Continental Illinois
- 2024 annual reports and 10-K/20-F filings: JPMorgan Chase, Bank of America, Citigroup, HSBC, Barclays