Financial History Issue 133 (Spring 2020) | Page 37

First National Bank, 1909. This building was constructed after a fire destroyed the first building.
of loans from Penn Square. When those
went sour, Continental Illinois was hit by
a tsunami of withdrawals.
“When Continental Illinois National
Bank and Trust Company failed in 1984,
it was the largest bank failure in US his-
tory, and it remained so until the global
financial crisis of 2007–08,” according to
the official history of the Federal Reserve.
“The Chicago-based bank was the seventh
largest bank in the United States and
the largest in the Midwest, with approxi-
mately $40 billion in assets. Its failure
raised important questions about whether
large banks should receive differential
treatment in the event of failure.”
The First National Bank of Midland
(FNBM) was the largest independent bank
in the state at the time of its failure in
October 1983. It had been a $1.4 billion
institution, and it became the second-
largest commercial bank, at the time, to
fail in FDIC history.
FNBM was effectively Penn Square,
squared: all the aggressive lending in oil
and gas, magnified by its central place
in the regional economy of the Permian
Basin. In early 1980, FNMB leadership
decided to bet heavily on the hometown
business. The bank “concentrated its loans
on drilling and exploration ventures and
financed its loan expansion partly by solic-
iting large deposits from Wall Street inves-
tors,” according to the FDIC post mortem.
“By year-end 1981, the bank had doubled
its assets,” regulators noted. “Euphoric
about the energy boom, the bank departed
from prudent banking practices in evalu-
ating loans; for example, it allowed cus-
tomers to determine the value of their
own collateral. The bank was known for
the ‘handshake’ loans it made on long-
shot oil and gas ventures.”
Falling oil prices and the recession of
1982 hit FNBM hard. “In 1983 the percent-
age of the bank’s non-paying loans was
approximately 25% of assets,” said the
FDIC report, “the highest percentage of
any large bank in the United States at the
time. In early October 1983, First National
reported that ‘nonperforming energy
loans were the primary contributors to its
$120.8 million in losses over the first three
quarters of 1983.’ Widespread publicity
about the bank’s losses eroded public con-
fidence and led to a run on deposits.”
A year after the FDIC took over FNBM,
The New York Times ran a long-form
feature by Robert Reinhold on the failure
and its effect on the region. It noted in a
matter-of-fact way that “as a result of its
takeover of the bank, the agency owns,
among other things, 67 oil wells, two
Rolls-Royces, rights to books and movies,
numerous office buildings and condomin-
iums and a huge chunk of real estate in
Midland. This includes a downtown tract
where the bank once planned to erect two
40-story office towers. This ‘superblock’ is
now a parking lot.
“Agency officials say that if they wanted
to play strictly by the rules,” the Times
reported, “they could foreclose imme-
diately on 365 homes, 12 commercial
buildings, a million acres of land and 139
drilling rigs, shutting 451 businesses and
putting 6,500 people out of work in Mid-
land and nearby Odessa.”
The FDIC official charged with sorting
the FNBM mess was Thomas R. Pro-
copio, who had already handled the failure
of Franklin National in 1974 and Penn
Square two years earlier. Among the liq-
uidations, he shut the Schaler Rolls-Royce
dealership, saying “We didn’t need the
world’s largest Rolls dealer in Midland,”
the Times quoted.
Procopio described the bank as “hor-
rendously” sloppy in record keeping.
“Everything was done on a handshake,”
the Times quoted. “It was like a $50 mil-
lion good-old-boy bank.”
The view from outside was no more
kind. “It was unbelievable the way they
were dishing out money,” the Times
quoted William M. Kerr, a leading Mid-
land lawyer who represents many debt-
ors. “You could borrow money without
collateral for deals that had no chance of
paying back.”
That was not always a bad thing. FNBM
lent to local cultural and social institu-
tions, including the YMCA and brought
classical music performances to the dusty
plains.
The final irony, an epitaph, for First
National Bank of Midland was written on
a plaque commemorating its founding in
1890. “Its financial stability has saved its
customers from ruin in the face of drought
or other disasters over the years.” 
Gregory DL Morris is an independent
business journalist, principal of Enter-
prise & Industry Historic Research
(www.enterpriseandindustry.com) and
an active member of the Museum’s edito-
rial board.
www.MoAF.org  |  Spring 2020  |  FINANCIAL HISTORY  35