Penn Square

About Penn Square

Penn Square Bank of Oklahoma City failed on July 5, 1982. The bank had 470 million in assets. Penn Square specialized in energy lending, originating oil and gas loans and selling participations to larger banks. Continental Illinois purchased over 1 billion in participations. When oil prices fell in 1982, the loans defaulted. Many loans had been made to borrowers with no ability to repay. Bank officers accepted kickbacks and falsified loan documents. The FDIC insured deposits up to 100,000 but uninsured depositors lost money. The Penn Square failure triggered the Continental Illinois crisis. Several bank officers were convicted of fraud. The case demonstrated the risks of speculative energy lending and the dangers of loan participation syndication without proper due diligence.