(R)The Journal Record, 1986 To William Isaac, there is no mystery
about what caused the American banking industr y's worst shake-out in
"Years and years of inflation, followed by extraordinarily high
interest rates, and two back-to-back recessions - that's what did
it," said Isaac, the former chairman of the Federal Deposit Insurance
As FDIC chairman from 1981-1985, Isaac saw 300 banks fail.
Together, those banks had assets worth $75 billion.
By comparison, in the FDIC's entire previous history of 47 years,
there were only $9 billion worth of bank failures.
Isaac blamed those same factors - runaway inflation, soaring
interest rates and twin recessions - for causing the build-up of
problem loans, which have wreaked havoc with banks in the Southwest
andthe Midwest during the last two years.
"The Southwest and the Midwest still have not recovered from it,"
said Isaac, now president of The Secura Group, a Washington, D.C.,
consulting firm that specializes in bank turnarounds.
Oklahoma, Kansas and Nebraska finished 1985 in a three-way tie for
the most bank failures - with 13 each. Nationwide, 120 banks were
declared insolvent last year.
This year, to date, the Sun Belt and the Grain Belt states have
once again been hit the hardest by bank failures: 16 banks have been
closed in Texas, followed by 11 in Oklahoma and Kansas, and 10 in
Iowa. Nationwide, 100 banks have been closed so far in 1986.
The grim trend in the Southwest, and a growing client roster in
the region, have inspired Isaac to announce The Secura Group's first
expansion - after only six months in business this year.
On Oct. 1, The Secura Group will open a Dallas office. That
office will be managed by Anthony J. Montelaro, currently a vice
president of the Federal Reserve Bank of Dallas.
"I had always wanted to own my own business," Isaac said.
Before President Jimmy Carter appointed him to the FDIC's board of
directors in 1978, Isaac had built a banking career in Kentucky and a
law practice in Wisconsin.
But Isaac said his entrepreneurial streak might have taken a
different turn, if he had not found himself caught up in the most
volatile period in the history of American banking.
The crisis began in August 1981, shortly after Isaac was sworn in
as FDIC chairman.
"I was named chairman and then the bottom fell out," Isaac said.
"First, there was the thrift crisis in 1981. Then we had the mutual
savings bank problems in the Northeast.
"Then Penn Square Bank came along, and then we had the Butcher
bank problems in Tennessee, and Continental Illinois came along on
top of that," Isaac said.
In Isaac's first six months as FDIC chairman, the agency spent
$1.5 billion handling 11 savings bank failures, he recalled.
"Before that, in its first 47 years, the FDIC had spent only $500
million handling all bank failures," Isaac said.
In 1985, the FDIC racked up $1.8 billion in losses and expenses in
connection with handling 120 bank failures, according to Alan
Whitney, FDIC spokesman.
No one has calculated the cost of handling Oklahoma's 33 recent
bank failures, which date back to July 5, 1982, when Penn Square Bank
of Oklahoma City was declared insolvent.
However, Isaac needs no reminders of that date. Four years ago,
he spent the Fourth of July weekend inside the Oklahoma City shopping
center bank to determine whether it had any hope of regaining
"At first, I wondered why they were bringing this bank to my
attention," Isaac said.
Penn Square Bank's assets totaled about $500 million.
But Isaac could not ignore the urgent message he got for an
emergency meeting to discuss Penn Square Bank with the Office of the
Comptroller of the Currency.
"About a half hour into the meeting, I became aware that there
were about $3 billion worth of claims, mostly in the form of loan
participations and letters of credit, off the balance sheet,
involving major upstream banks, such as Continental Illinois and
Chase Manhattan," Isaac said. …