Understanding the Collapse of Penn Square National Bank: A Cautionary Tale

Jun 15
3 min read

Updated: 4 hours ago

Bank run line on Penn Square National Bank — A line forming outside Penn Square Bank - people looking to withdraw their money once their bank had failed

The Rise and Fall of Penn Square National Bank

This episode tells the story of Penn Square National Bank through the eyes of Lesylee Sullivan Hodge. She worked at the bank for a brief time before starting a long career with the FDIC. What began as a small Oklahoma City bank became a symbol of how quickly a financial institution can go rogue.

Short-term profits, aggressive growth, and a high-flying culture overwhelmed basic discipline. Large loan participations sold to other banks eager to share in the returns only added to the chaos. When it all fell apart, the bank failed. Its uninsured depositors and the FDIC paid the price.

Lesylee’s firsthand account connects Penn Square to broader lessons about deposit insurance and bank resolution. She highlights the people left behind when a bank fails. Her later FDIC career gives the conversation unusual depth. It shows how a failed bank is handled by the FDIC and the emotional burden carried by those who must tell depositors their money is gone.

Lesylee Sullivan Hodge - Our guest for this episode

Lesylee's Journey

Lesylee’s “Banking Bad” career began at Penn Square Bank in Oklahoma City. It ended on July 5, 1982, when the bank failed, and she was hired by the FDIC.

Throughout her 37-year FDIC career, Lesylee became a deposit insurance expert. She was the Claims Agent in charge of memorable bank failures such as First National Bank of Keystone, Superior Bank, FSB, Hamilton Bank, NA, American Savings Bank, FSB, and IndyMac.

Having experienced many late nights at bank closings, she manually calculated deposit insurance coverage. She was the creative force behind designing a system that automated these calculations. This system is still utilized today.

During her career, Lesylee met with representatives from numerous international deposit insurers. She was a featured speaker at conferences in Nicaragua and Taiwan.

Lesylee holds a Bachelor of Business Administration degree from the University of Central Oklahoma in Edmond, Oklahoma.

Rolls Royce in the lobby of the bank — Rolls Royce in Penn Square Bank

Beep Jennings in front of the bank — Bill "Beep" Jennings - Chairman of Penn Square Bank

Lessons Learned from the Collapse

The collapse of Penn Square National Bank offers critical insights into the banking industry. It serves as a cautionary tale about the risks of unchecked growth and the importance of sound financial practices.

One major lesson is the significance of deposit insurance. When banks fail, uninsured depositors often face dire consequences. Understanding how deposit insurance works can help individuals protect their savings.

Another key takeaway is the importance of regulatory oversight. Strong regulations can prevent banks from engaging in risky behaviors that jeopardize their stability.

Finally, the emotional toll on employees and depositors during a bank failure cannot be overlooked. Lesylee’s experiences illustrate the human side of financial crises.

Bonus Content

Artifacts and Resources in this episode:

FDIC resources: