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Penn Square Bank's unexpected legacy



A quarter-century ago, Penn Square Bank failed spectacularly in Oklahoma City, ushering in the untimely end of a previous oil boom, indelibly changing the landscape of banking throughout the state and hastening the emergence of national mega-banks.


And yet, after a generation of national consolidation in the banking industry, we enjoy one of the most competitive banking markets in the country, a direct consequence of Penn Square's failure in 1982.


As the first domino to fall in a chain reaction lasting a decade, Penn Square Bank became the poster child for the inflationary excesses of the Eighties, an era in which most bankers, oilmen and gasoline consumers had been convinced the prices of energy never again would decline from a $40-a-barrel peak in 1979.


Penn Square 's failure opened our banking market to out-of-towners, with regional bank acquisitions of First National Bank of Oklahoma City, which failed, in 1986 and later Liberty Bank, which didn't fail, in 1997.


As the consolidation trend continued, those regional banks would themselves be acquired by national rivals " most recently by Bank of America and JPMorgan Chase & Co. " but not before almost completely dismantling the local institutions in the name of cost-cutting and efficiency.


In turn, alienated former customers nurtured nascent, local financial institutions, helping them grow over the years as the oil patch depression faded.


As recently as 1994, those two banks still had a market share of more than 31 percent in Oklahoma City. A year ago their share had plunged to only 15 percent.


Nationally today, the top five banks (Citibank, Bank of America, JPMorgan Chase & Co., Wachovia and Wells Fargo) control 40 percent of the nation's deposits, which would have scared populist founders like Thomas Jefferson and James Madison who preferred a fragmented banking system to avoid big-city concentration of financial power.


Two of those top five banks are headquartered in New York City, one in San Francisco and two in Charlotte, N.C., of all places, but none in Boston, Atlanta, Los Angeles or Chicago.


And none, of course, in Dallas or Houston, which rankles Texans no end, as out-of-state banks descended upon Texas in the Eighties and snapped up the good parts of what was left of the state's banking business and stuck the Federal Deposit Insurance Corp. " taxpayers " with the cleanup tab.


In Dallas now, nearly 66 percent of deposits are held by the top three banks, all based out of state; in Houston the number's almost 50 percent, and nearly 40 percent in St. Louis and Chicago, again, all held by banks located elsewhere.


In Oklahoma, however, the top three banks (Bank of Oklahoma, MidFirst Bank and BancFirst) control less than 25 percent of deposits and, more importantly, all have headquarters in Oklahoma.


In fact, 43 of the state's top 50 banks are Oklahoma-owned and operated and command an 81 percent market share, almost unique in the nation.


The money shot: Competition brings better banking opportunities to Oklahoma consumers, and local bank ownership and decision-making benefits Oklahoma communities, rather than Charlotte, N.C., or New York City.


Next time you get mad at your bank, it's OK " move your accounts elsewhere. Here in Oklahoma we have plenty of competitive, locally owned financial institutions from which to choose, an unexpected result of Penn Square Bank's failure in 1982.


Hazelton is a wealth manager living in northwest Oklahoma City.

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