Parallels? The Small Oklahoma Bank That Took Down Seafirst


“It does feel like Penn Square,” said CNBC’s Jim Cramer. Cramer was comparing the collapse of Silicon Valley Bank on Friday, March 10, to the failure in 1982 of the tiny Oklahoma City bank that brought down Seattle-First National Bank — Seafirst.

There are some parallels. Both failures occurred at banks that had a special role feeding a speculative boom. But there are some important differences, as I recall from covering the Penn Square saga for the P-I.

In Penn Square’s case, the boom was in natural gas. The “Energy Crisis” of the late 1970s had run up the cost of oil and gas. “Shallow” gas, close to the surface, was under federal price control, but “deep” gas was not. The result was a boom in drilling for deep gas. Penn Square Bank had made a business in loans to gas drillers, many of them newbies who weren’t too good at it. If a driller didn’t find gas, Penn Square would give him another loan, so that he could “drill his way out of debt.”

Penn Square became a perpetual motion machine of loans to gas drillers, lending out several times what the bank had in deposits. It did this by selling the loans to out-of-state banks like Seafirst, and turning around and lending the money again. Because so many of its loans turned bad, Penn Square spread financial sickness to “upstream” banks in New York, Chicago, and Seattle.

Silicon Valley Bank, based in Santa Clara, California, also made loans to a hot new industry, namely tech startups. The startup would get seed money from venture capitalists, then go to the bank for a loan. The bank would secure its loans with company stock, which at that point was illiquid because it was not publicly traded.

This is not a conservative way to run a bank, but if the trend is in your favor and you don’t make too many mistakes, it can work. And it did work, spectacularly. Founded in 1983 by venture capitalist Roger V. Smith, Silicon Valley Bank grew to more than $200 billion in assets. That’s still less than 10 percent the size of the giant Chase Bank, but it’s about four times the size of Portland-based Umpqua Bank, founded 30 years before Silicon Valley Bank.

A bank’s assets are the loans it makes and the investments it buys. And here is where Silicon Valley Bank was not like Penn Square. Silicon Valley wasn’t cranking out more loans than it had deposits. It was the opposite. It had more deposits than loans. Its problem was what to do with all the money.

It invested much of the money in bonds, especially U.S. Treasuries. Usually that’s a prudent thing. Treasuries are said to be the safest investments in the world, and held till maturity, they are. But Silicon Valley Bank bought “long” bonds, which may not mature for 30 years. Long bonds typically pay a higher interest rate than short bonds, and the bank liked that. But when depositors wanted their money, and the bank had to sell its long bonds, the value of those bonds in the market had gone down. 

The prices of long bonds move the opposite of interest rates. When new bonds are offered at higher rates, old bonds trade at a discount. After the Great Recession of 2008, the Federal Reserve held interest rates unnaturally low. Indeed, never in American history have interest rates remained so low for so long. And that made bond prices high.  Since inflation jumped up last year, the Fed has responded by raising interest rates back to more normal levels. The result was a discount on the old bonds. CNBC Business News reported January 7 that last year was “the worst-ever for U.S. bonds,” with the Total Bond Index down 13 percent. 

At the Silicon Valley Bank, the depositors were mostly companies, not individuals. By press accounts, about 90 percent of the deposits were in amounts above the $250,000 guaranteed by the Federal Deposit Insurance Corporation. When the tech industry started announcing layoffs, companies started pulling out their money. There began a bank run, which if not stopped is a death sentence for a bank.

The federal government has stepped in and guaranteed all the deposits of Silicon Valley Bank and another troubled lender, Signature Bank of New York, which closed two days later. A third bank, Silvergate Bank, closed last week; it was involved in cryptocurrency. With the rash of “crisis” news, President Biden has assured everyone that the banking system is O.K. Biden risks sounding like Herbert Hoover, but he’s offering the banks the kind of protection that they didn’t have 90 years ago, so he’s probably right.

Still, there is one sense in which Silicon Valley Bank is another Penn Square. The failure of the little bank in Oklahoma City 40 years ago was an omen of a nasty recession. The failure of the Silicon Valley Bank, and of the other two lenders, likely signals another one coming.

Or already here.   

Bruce Ramsey co-wrote a four-part series in 1983 in the Seattle Post-Intelligencer called “The Wrecking of Seafirst.” 

Bruce Ramsey
Bruce Ramsey
Bruce Ramsey was a business reporter and columnist for the Seattle Post-Intelligencer in the 1980s and 1990s and from 2000 to his retirement in 2013 was an editorial writer and columnist for the Seattle Times. He is the author of The Panic of 1893: The Untold Story of Washington State’s first Depression, and is at work on a history of Seattle in the 1930s. He lives in Seattle with his wife, Anne.


  1. A cherished memory: I rode No. 2 Metro bus downtown on morning that fall-of-Seafirst series broke in the P-I. It was very good read and fellow passengers were reading it.
    The series recounted fun loving behavior of bank executives … notably a young woman named (I think) Trixie being ushered up to the boardroom.
    Watched three passengers go to the jump, hit the part about Trixie, and give a sudden, visible start.
    As I recall, fun loving Seafirst CEO engaged in hijinks with other power guys I am outfit called SOYP, for Socks Outside Your Pants.

  2. Bruce who credibly covered Penn Square, giving the P-I a scoop a day for weeks, has done it again. Many thanks for delivering the story’s outlines.
    It does stir memories of that long-ago financial disaster. I can recall stories of the Seafirst loan officer who drank beer out of boot in local hotspots and another who was wearing a diamond ring fashioned to look like an oil derrick.

  3. “Funny Money” by New Yorker writer Mark Singer was a hilarious book on the rise and fall of Penn Sq. Don’t miss it. You just can’t make this stuff up. And our regulators and politicians just never get it. I know a relative who works for SVB, she was hired on by the Feds the day after losing her job for 1.5x her salary for a limited amount of days. She had just received her annual bonus the day before the bank collapsed, apparently just a coincidence. Unlike Penn Sq. she said that it was the best job she ever had and that the people there treated her with more respect than anyplace she ever worked. Sad that they made such a stupid error.

  4. One other story on Seafirst and Penn Sq. I ran a video production company that worked with Seafirst, and the head of corporate communications had advanced us a lot of money for a new project. He called me up the morning he was about to go in front of a bunch of reporters and told me that the bank was folding and I could keep the money. I thought he must have been stoned, it was such an unbelievable thing to say at 7:30 AM. Our company went down and I sold it because of that collapse, they were our biggest client.

  5. Puget Sound-area banking historians would do well to poke around to view the (greedy) foundational flaws of Seafirst’s eventual collapse, and how that venerable pioneer-era bank came to be led by the CEO who took it down.

    That man was heir to a bank based in Everett. More than one source told me, back in that day, that handsome fellow was the son of the Everett bank’s owner who’d agreed to sell his institution to Seafirst (which wanted to acquire its branch banking locations and assets – where Boeing was building the 747) in return for appointing that son as CEO of the entire Seafirst merged bank.

    Deal done.

    That fellow – handsome, married, with a large family – was soon attending social and charitable events in Seattle where he was identified as a self-assured predator of young “society” females. Or any young females, it seemed. This was no longer our grandparents’ Sea-First!

    Seattle’s banking culture of that era dismissed his behavior as tolerable. Yet, once in charge, the over-confidence of the era’s male-dominated mind-set led that man, who was at the helm of so many people’s life savings, to follow his overconfidence over a professional cliff. Into the temptations of Penn Square.

    When the game was up, the playboy CEO went on to a comfortable society life, and a more savvy banking management from out of state took control.


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