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Essay / Research Paper Abstract
This 5-page paper discusses ethical dilemmas faced in Dow Corning's early 1990s bankruptcy and Penn Square Bank's early 1980s collapse. Bibliography lists 4 sources.
Page Count:
5 pages (~225 words per page)
File: AS43_MTdowbethi.rtf
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Penn Square Bank What were the ethical pressures on the firm concerning documentation, credit extension, and revenue recognition that led to the final collapse?
Penn Square Bank was an Oklahoma City, OK bank that collapsed because of large, speculative loans made to the oil and gas industries (Penn Square
Bank NA, 1998). Through these loans, the bank grew from $62 million in assets in 1977 to $520 million in assets by mid-1982 (Penn Square Bank NA, 1998; see
also Sprague, 1986). At the time of its failure during the early 1980s, Penn Square was servicing approximately $2 billion in loans, and of its more than $470 million
in deposits, only about $207.5 million were insured (Penn Square Bank NA, 1998). Other aspects that led to the banks collapse
(if making risky loans wasnt enough) was the fact that, from its very beginning in 1960, the bank didnt document loans properly - it based repayment on collateral value rather
than on the ability of the borrower to repay (Penn Square Bank NA, 1998). Furthermore, though the Office of the Comptroller
of the Currency (OCC) had strict limits on how much credit could be issued to any particular customers, this wasnt a problem for Penn Square. If a customer wanted more,
Penn Square would make the loan, then sell participation to another bank (Penn Square Bank NA, 1998). In the late 1970s, Penn Square began selling oil and gas participations
to Continental Illinois National Bank & Trust Company (Penn Square Bank NA, 1998). Later, in 1979, when the Shah of Iran was forced to leave the country and oil
...