Penn Square Bank was a small commercial bank located in Oklahoma City, Oklahoma that failed in July 1982. The bank made a large amount of poorly underwritten energy-related loans that it sold to other banks. Losses on these loans led to significant financial problems for a number of those banks.

The bank was founded in 1960 and was located in the rear of the Penn Square Mall[4] in Oklahoma City. The bank made its name in high-risk energy loans during the late 1970s and early 1980s Oklahoma and Texas oil boom. Between 1974 and 1982, the bank's assets increased more than 15 times to $525 million and its deposits swelled from $29 million to more than $450 million. As a result primarily of irresponsible lending practices in connection with the sale of over $1 billion in "loan participations" to other banks throughout America, Penn Square Bank failed[5] in July 1982. Unlike most previous bank failures since the Federal Deposit Insurance Corporation (FDIC) was formed, the uninsured depositors suffered losses as no other bank was willing to assume the deposits. As most of the deposits came from other financial institutions and represented high interest-rate jumbo certificates of deposit that were largely uninsured, this represented a major loss for the depositors. The investigation by the FDIC after the bank failure uncovered 451 possible criminal violations.

The bank is often cited as being partly responsible for the collapse of Continental Illinois National Bank and Trust Company of Chicago, which had to write-off some US$500+ million in loans purchased from Penn Square. In addition, there were major losses at other banks, including Seattle First National Bank, Michigan National Bank, and Chase Manhattan Bank in New York (Seattle First and Continental Illinois were eventually acquired by Bank of America predecessor BankAmerica; the former in 1983 and the latter in 1994). The bank's collapse coincided with the 1980s oil glut and Penn Square was the first of 139 Oklahoma banks that failed in the 1980s. The insolvency was the subject of two best-selling books and led to a two-year prison term for the bank's energy-lending chief, Bill Patterson. [7][8]

Abilene National Bank in Abilene, Texas did correspondent banking with Penn Square Bank. Abilene National Bank later became Mbank then Bank One then JPMorgan Chase bank.

Penn Square alumni

  • Bill P. (Beep) Jennings (b. 1923, d. 2003)
  • William G. "Bill" Patterson
  • (b. 1925, d. 1980)