Founded in 1960, Oklahoma City’s Penn Square Bank made a spark with its shopping mall setting and drive-through teller window convenience.<\/p>
By the mid-’70s, the bank shifted from suburban housewives to focus on financing a new customer: the oil and gas industry. The bank grew by “aggressively making large and speculative loans” to the energy industry, according a historical account<\/a> of bank crises by the Federal Deposit Insurance Corporation. But oil prices peaked in April 1981 and started to fall. A year later, rumors of problems spooked a deposit runoff, and on July 5, 1982 Penn Square Bank was declared insolvent.<\/p> The Penn Square Bank’s “abusive practices” were funded by banks, savings and loans and credit unions throughout the U.S, the FDIC chairman at the time said. The sole motivation: a “desire to make a fast buck.”<\/p> The bank’s failure changed finance forever.<\/p> At first, lending to oil and gas companies was a gusher. Penn Square Bank had $62 million in assets in 1977; by 1982, it had $520 million, according to the FDIC’s historical account:<\/p>\n Penn Square then sold majority interests in those loans to other banks (in the form of loan participations), but retained the responsibility for servicing the entire loan amount. At its failure, Penn Square was servicing approximately $2 billion in loans.<\/p><\/blockquote> And most of the $2 billion in loans were high-risk, and had been sold to out-of-state banks, reports<\/a> the Journal Record<\/em>‘s Brianna Bailey. Rumors became a frenzy, and a “full-scale run” on the bank erupted on July 2, 1982.<\/p>\n \u201cSome people got a little rowdy,\u201d former cashier Jim Pitts tells the paper. \u201cI remember this little elderly woman, she got really hostile. I didn\u2019t blame her at all. She just wanted her money and she couldn\u2019t get it right then.\u201d<\/p><\/blockquote> Here’s how the Associated Press described it then:<\/p>\n Hundreds of depositors seeking their money crowded the former Penn Square Bank on Tuesday as the federal government began liquidating the 21st bank to fail in the United States this year … Nearly 100 people stood outside the bank\u2019s doors at noon, waiting to enter the lobby jammed with depositors. A continuous line of cars wound through the drive-in lanes. Bank workers handed out glasses of iced water to those waiting outdoors in the 90-degree heat.\u201d<\/p><\/blockquote> But there were warning signs.<\/p> There were tales of OKC oil and gas men taking helicopters to Dallas for lunch, the Journal Record<\/em> recalls, all of which were “financed with high-interest-rate loans from Penn Square Bank.”<\/p> James Finch, who worked at Citizens National Bank, said Penn Square would approve loans for borrowers his bank had just turned down, the Oklahoma Gazette<\/em> reports<\/a>.<\/p> And Finch also remembers Penn Square Bank recruiters calling him and his colleagues to woo them away from Citizens National by doubling their salaries and giving them lavish corporate perks. He thought it sounded too good to be true.<\/p> It was.<\/p>\n Oklahoma Bankers Association President Roger Beverage recalled that of the more than $450 million in deposits, nearly half that amount was over the FDIC\u2019s insured limit, Dean Anderson writes in the Gazette<\/em>.<\/p><\/blockquote> The Penn Square bank collapse dominoed from one side of the country to the other. Losses at Seattle First National Bank helped force its merger with Bank of America. The failure of Chicago’s Continental Illinois National Bank and Trust Company \u2014 the country’s largest ever \u2014 was blamed on the Penn Square fiasco, which also brought New York’s Chase Manhattan “to its knees,” the Gazette<\/em> reports.<\/p>