The Monetary Decontrol Act, plunging oil prices, poor management, supply side economics, recession --they all add up to the worst decade since the Depression for Oklahoma's financial institutions.
"A tremendous amount of outside capital and credit came to Oklahoma from Texas and the East and West Coasts, mostly for energy and real estate deals," said Mark Brackin, head of Broadhurst Financial Group. "It fueled inflation here so substantially that once it got out of sync with market realization, the whole thing collapsed. People were making deals based on 21 percent interest rates and $40 a barrel oil."
The drop in oil and real estate prices undermined the value of borrowers' collateral. S&Ls, traditionally lenders to home and commercial builders and buyers, found themselves with more mortgage foreclosures than they ever had to face.
Also, management in some institutions failed in their jobs, making loans to people who lied on applications and not closely monitoring borrowers.
Finally, there were the out-and-out crooks -- officers and directors embezzling, making false reports and taking loan kickbacks.
"Previously, you had to show a need for a bank in order to get a charter," Brackin said. "After decontrol, if you had the money, you could get a charter. That doesn't work.
"We have 450 banks in the state now. We have worked off the excesses in the market, but there are still too many banks for the economy. We'll see a lot of consolidation in the coming years."
Oklahoma saw 102 banks and many thrifts go under during the decade.
Most failures occurred within a 50-mile radius of Oklahoma City, said Brackin, and the second-highest number happened around the Anadarko Basin.
"Most of the outside credit came through Oklahoma City then went down the road because that's where a lot of the oil and gas deals were going on. Failures were pretty light in the rest of the state -- three in the southern part and a few in the southeast around McAlester. The northeast quadrant excluding Tulsa had only three failures."
The first bank to tumble was a giant -- Penn Square Bank in Oklahoma City.
The bank collapsed in July 1982 -- after experiencing 1,500 percent growth over seven years --under the weight of energy loans it could not collect. Some of the loans were sold to other institutions around the country; Continental Illinois National Bank & Trust Co., Seafirst and Chase Manhattan Bank had more than $2 billion in loans. In fact, Chicago-based Continental Illinois needed a $4.5 billion bailout from the government in 1984 to survive the largest run on deposits in banking history.
William Patterson, former head of energy lending at Penn Square, was convicted of bank and wire fraud charges.
Another Penn Square executive and one from Continental Illinois were convicted of fraud, obstruction of justice and doctoring bank records.
The parents of First National Bank & Trust Co. of Tulsa and Liberty National Bank & Trust Co. in Oklahoma City completed a merger in the summer of 1984, creating, at the time, the largest bank holding company in the state. The new parent company, Banks of Mid-America Inc., underwent restructuring and raised $75 million in new equity capital in October last year.
Tulsa-based Republic Bank, Republic Bancorporation, Republic Trust & Savings Co. and Republic Financial Corp. went under in September 1984.
Each of those four companies, in addition to several oil firms and insurance firms, were controlled by Wes McKinney, who acted as chairman of their boards from the late 1970s through most of 1984. Regulators removed him from the financially troubled Republic companies, and Republic Trust, Republic Bancorporation and Republic Financial were placed in Chapter 11 bankruptcy on Sept. 24, 1984.