But those in banking before the advent of the Internet tell a far more emotional story of high-flying finance that ended in a spectacular supernova, changing the banking industry forever.

Thursday marks the 30th anniversary of Penn Square’s failure. Those in the industry still remember it like it was yesterday.

In 1982, James Finch was working audit compliance and loan review for Citizen’s National Bank at N.W. 23rd and Classen Boulevard.

It was evident something different was going on at the bank located behind Penn Square Mall.

“Our bank would turn a borrower down and they would get their loan approved at Penn Square and basically thumb their nose at us,” Finch recalled.

Penn Square burned bright, increasing its assets 15 times over to $525 million between 1974 and 1982. During that time, deposits ballooned from $29 million to $450 million.

But the sale of $1 billion in loan participations, in which several lenders chip in to fund a large loan, eventually brought the bank down.

And a lot of banks soon began to circle the drain, as well.

The first domino
According to the Federal Deposit Insurance Corp., Penn Square was just one of 1,600 banks to fail or receive FDIC assistance between 1980 and 1994. It was the first Oklahoma bank to fail during that period.

Prior to then, Finch remembers, he and several colleagues routinely received calls from a recruiter at Penn Square.

“The offer would have doubled our salaries, with company vehicles and expense accounts,” he said. “It made you stop and think just for a little bit.

“It was too good to be true.”

As was Penn Square’s balance sheet.

Some 80 percent of the bank’s portfolio was tied up in oil and gas. And when the bottom fell out of fuel prices, there was nothing to fuel the massive Penn Square machine.

Brad Swickey
Credit: Mark Hancock

Today, Brad Swickey is CEO of Valliance Bank, but in 1982 he was working at Liberty Bank when regulators locked the doors at Penn Square.

“Many in the banking community weren’t shocked by it — surprised, perhaps, because as bankers we know what other bankers in town were doing and what types of loans they were making,” Swickey said. “We knew they were running a high-risk, high-reward strategy.”

‘Shock wave’
For the public, however, the Penn Square Bank collapse was a shock.

TV news reports showed upset bank customers lining up for blocks trying to get to their money, even though FDIC Chairman William Isaac had assured depositors they would be covered up to the legal limit of $100,000.

In reality, however, many of Penn Square’s loans were above that insured limit.

“It a turning point, really,” Swickey said. “Nobody wanted to buy the deposits of the bank because more than 50 percent of the their deposits were brokered. It was back then what they called ‘hot money.’”

Oklahoma Bankers Association President Roger Beverage recalled that of the more than $450 million in deposits, nearly half that amount was over the FDIC’s insured limit.

Roger Beverage
Credit: Mark Hancock

“I think Penn Square taught the FDIC how to manage through a significant-size bank failure,” he said.
The industry has contracted in the state, moving from more than 500 chartered banks in the 1980s to 235 today.

“That’s quite a consolidation of the industry, and Penn Square was the beginning of the process,” Beverage said. “It really opened up Oklahoma’s banking laws.”

Lee Symcox, First Fidelity’s president and CEO, was a Norman banker at the time. He also remembers that July well.

Of the seven banks in Norman at the time, five would fail and one required recapitalization by new ownership. Only Symcox’s City National Bank made it through unscathed.

“In defense of the FDIC and all the regulators, there had never been anything like that situation, so it was a learning experience,” Symcox said. “More important, nobody knew … the shock wave it would send down the road.”

The collapse led to the failure of Chicago behemoth Continental Illinois and brought Chase Manhattan to its knees. Seattle First National was forced into a merger with Bank of America. Michigan National took a huge hit on its balance sheet.

“Penn Square did not cause the bank failures over the years,” said Symcox. “It was caused by the industry losing sight of basic lending principles. It was inevitable a bank failure would happen.”

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