My Experience With Failed Banks
When Penn Square Bank was shut down by the Feds in ‘81 depositors lost 163 million dollars in uninsured accounts.
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 bank failure in U.S. history up to that time.
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.
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.
I had an insurance agency in western Oklahoma working with interest rates in the high teens and oil climbing to $55/bbl. It seemed that overnight oil dropped to $5/bbl and ghost towns began cropping up.
Obviously, it wasn’t overnight but, by October 19, 1987, the stock market lost over 50% of its value! Now we are here again…
(Source: The Encyclopedia of Oklahoma History and Culture, Lynne Pierson Doti)
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