Ethics of Penn Square and Dow Corning
Ethics of Penn Square and Dow Corning
Ethics of Penn Square Bank and the Dow Corning Bankruptcy Penn Square Bank: What were the ethical pressures on the firm concerning documentation, credit extension, and revenue recognition that lead to the final collapse? What should have been done to reduce or offset these pressures?
Penn Square Bank was a small commercial bank in Oklahoma City which made high-risk financial loans during the late 1970s in the oil boom. The bank ultimately collapsed during the early 1980s due to their financing practices. The bank was overestimating and valuing its customer’s gas and oil reserves that let at that time to fund a bigger credit line. In addition, the bank didn't request clients to complete proper loan paperwork or proper security to back the financial loans. Penn Square bank utilized their links with bigger banks all over the United States of America to offer the loans to them, and became a middle-man of types and was earning money from the loan application charges and loan administration charges charged to the big out of state banks.
By 1981 a fiscal downturn slowed down the interest in oil and Penn Square became the focus of bank investigators (Caskey, 1985). During the investigation, they found out that the borrowers were not making their interest payments on their personal lines of credit nor were the vast majority of borrowers in a position to payback their financial loans. Also, the financial loans were approved on the value of the security as opposed to the borrower’s capability to pay back the debt. Rumors started to flow concerning the banks problems that triggered a run on the bank and compelled Penn Square to depend on brokered money (Caskey, 1985). Authorities required that Penn Square raise additional capital to pay for the unsecured loans in their portfolio but eventually they couldn't. Their practices triggered Seattle First National Bank to have losses that surpassed their capital, as well as the
Ethics of Penn Square Bank and the Dow Corning Bankruptcy Penn Square Bank: What were the ethical pressures on the firm concerning documentation, credit extension, and revenue recognition that lead to the final collapse? What should have been done to reduce or offset these pressures?
Penn Square Bank was a small commercial bank in Oklahoma City which made high-risk financial loans during the late 1970s in the oil boom. The bank ultimately collapsed during the early 1980s due to their financing practices. The bank was overestimating and valuing its customer’s gas and oil reserves that let at that time to fund a bigger credit line. In addition, the bank didn't request clients to complete proper loan paperwork or proper security to back the financial loans. Penn Square bank utilized their links with bigger banks all over the United States of America to offer the loans to them, and became a middle-man of types and was earning money from the loan application charges and loan administration charges charged to the big out of state banks.
By 1981 a fiscal downturn slowed down the interest in oil and Penn Square became the focus of bank investigators (Caskey, 1985). During the investigation, they found out that the borrowers were not making their interest payments on their personal lines of credit nor were the vast majority of borrowers in a position to payback their financial loans. Also, the financial loans were approved on the value of the security as opposed to the borrower’s capability to pay back the debt. Rumors started to flow concerning the banks problems that triggered a run on the bank and compelled Penn Square to depend on brokered money (Caskey, 1985). Authorities required that Penn Square raise additional capital to pay for the unsecured loans in their portfolio but eventually they couldn't. Their practices triggered Seattle First National Bank to have losses that surpassed their capital, as well as the