Penn Square Bank
| Company type | Private |
|---|---|
| Industry | Banking, Financial services |
| Founded | 1960 |
| Fate | Insolvent (July 1982) |
| Headquarters | Oklahoma City , United States |
| Products | Commercial banking, energy sector loans |
Penn Square Bank was a modest-sized American commercial bank headquartered in Oklahoma City, Oklahoma. It became infamous for issuing a large volume of inadequately underwritten loans tied to the energy sector, which it subsequently sold to other financial institutions. These problematic loans led to substantial financial setbacks, ultimately resulting in the bank's insolvency in July 1982.
History
Established in 1960 and situated near the Penn Square Mall in Oklahoma City, the bank took advantage of the oil boom occurring in Oklahoma and Texas during the late 1970s and early 1980s by extending high-risk loans within the energy industry. Between 1974 and 1982, its total assets expanded more than fifteenfold, reaching $525 million, while deposits increased dramatically from $29 million to over $450 million. Nevertheless, reckless lending practices combined with the distribution of upwards of $1 billion in "loan participations" to other banks precipitated its collapse in July 1982. Unlike typical FDIC-insured failures, Penn Square's uninsured depositors incurred losses because no other institution took over these deposits. A significant portion of these were jumbo certificates of deposit held by other financial entities, exposing them to considerable uninsured risk. The FDIC's inquiry revealed 451 potential violations of criminal law.
The downfall of Penn Square Bank had a profound effect on several major banks, notably playing a key role in the failure of Continental Illinois National Bank and Trust Company in Chicago, which recorded $326 million in loan losses from purchases linked to Penn Square. Other impacted banks included Seattle First National Bank, Michigan National Bank, and Chase Manhattan Bank. This failure coincided with the 1980s oil glut and was the initial event among 139 bank failures in Oklahoma throughout that decade. The crisis inspired two widely read publications and led to a two-year imprisonment for Bill Patterson, who headed the bank’s energy lending division.
Penn Square alumni
- Bill P. (Beep) Jennings (1923–2003)
- William G. "Bill" Patterson
- Laurence Francis Rooney Jr. (1925–1980)
- Richard C. Haugland
- William Eugene Rowsey III