Home > PublicationsEncyclopedia >  Penn Square Bank

PENN SQUARE BANK.

The failure of Penn Square Bank of Oklahoma City had a devastating effect on the U.S. banking system when the bank was declared insolvent on July 5, 1982. The ill-fated financial institution started in 1960 in a shopping mall. Penn Square Bank had a drive-up window to make transactions more convenient for suburban housewives with children to manage. In 1975 William Paul "Bill" Jennings purchased the bank and began to finance oil exploration and drilling. The bank made loans and then sold shares in the loans to other banks. As payments came in, Penn Square charged a fee to divide up the funds among the banks according to their share or "participation." This allowed Penn to originate over $2 billion worth of these investments.

By the late 1970s the federal Office of the Comptroller of the Currency's examinations indicated that Penn Square Bank was overextended. When oil prices dropped in 1981, the situation quickly turned desperate. Depositors withdrew $50 million in May 1982, and by July examiners knew the bank could not survive. They spent the Fourth of July weekend setting up the closure of Penn Square and forming a new bank so that the Federal Deposit Insurance Corporation (FDIC) could pay the $207 million that was due to insured depositors. Uninsured deposits of $163 million were not paid.

The oil loan shares caused problems for numerous other banks and precipitated a crisis in the entire banking system. Seattle First National Bank (Seafirst) in Washington was one of the first failures to result from losses on the participations. Soon after, Continental Illinois National Bank and Trust Company in Chicago, which had participated in the loans in the amount of almost $1 billion, became the largest failure in U.S. history and the first bank to be actually acquired and operated as a federal government enterprise. Penn Square Bank's failure resulted in the revision of Oklahoma's banking laws and tighter regulatory control on the nation's banks through the passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the Federal Deposit Insurance Corporation Improvement Act of 1991.

Lynne Pierson Doti

See also: BANKING INDUSTRY, OKLAHOMA ECONOMY, PETROLEUM INDUSTRY, TWENTIETH-CENTURY OKLAHOMA

Bibliography

Daily Oklahoman (Oklahoma City), 2–8 July 1982.

Federal Deposit Insurance Corporation, Managing the Crisis: The FDIC and RTC Experience, 1980–1994 (Washington, D.C.: Federal Deposit Insurance Corporation, 1998).

Lynne Pierson Doti and Larry Schweikart, Banking in the American West: From Gold Rush to Deregulation (Norman: University of Oklahoma Press, 1991).

Irvine H. Sprague, Bailout: An Insider's Account of Bank Failures and Rescues (New York: Basic Books, 1986).

Phillip L. Zweig, Belly Up: The Collapse of the Penn Square Bank (New York: Crown Publishers, Inc., 1985).

Copyright and Terms of Use

No part of this site may be construed as in the public domain.

Copyright to all articles and other content in the online and print Encyclopedia of Oklahoma History is held by the Oklahoma Historical Society. This includes individual articles (copyright to OHS by author assignment) and corporately (as a complete body of work), including web design, graphics, searching functions, and listing/browsing methods. Copyright to all of these materials is protected under United States and International law.

Users agree not to download, copy, modify, sell, lease, rent, reprint, or otherwise distribute these materials, or to link to these materials on another web site, without authorization of the Oklahoma Historical Society. Individual users must determine if their use of the Materials falls under United States copyright law's "Fair Use" guidelines and does not infringe on the proprietary rights of the Oklahoma Historical Society as the legal copyright holder of The Encyclopedia and part or in whole.

Photo credits: All photographs presented in the published and online versions of The Encyclopedia of Oklahoma History and Culture are the property of the Oklahoma Historical Society and are held in the agency's Research Division Photograph Archives (unless otherwise stated).


Citation

The following (as per The Chicago Manual of Style, 16th edition) is the preferred citation for articles:
Lynne Pierson Doti, "Penn Square Bank," The Encyclopedia of Oklahoma History and Culture, www.okhistory.org (accessed November 17, 2017).

About the Encyclopedia | Terms of Use | Using the Encyclopedia