Penn Square Bank had problems with ethical issues on how document contract, extend credit to clients and incompetency. Dow Corning used bankruptcy as way of avoiding its obligations through deceit and fraud.
Ethical Pressures
Penn Square Bank was a small bank in Oklahoma City with $35 million (UOPX, 1985) in assets. In the late 70s there was an oil boom in Oklahoma State. Penn Square Bank was not going to be left out; they hired Bill Paterson to head the energy lending department with connections, and some hard work Bill was able to succeed momentarily. Penn Square Bank was making multimillion dollar loans to local energy prospects and selling the loans to large bank (UOPX, 1985). Large banks such as Chase Manhattan, and Continental Illinois Banks were purchasing unsecured loans from Penn Square Bank.
The price of oil fell drastically from 1981 through 1982 and Penn Square Bank was facing bankruptcy. Penn Square Bank officials were approving loan contracts without checking the credit of these potential lenders; they would even extend credit to oil companies and accept drilling rigs as collateral.
Penn Square bank should have done more research on the oil business; this would have given the bank some inside on how the oil business operates. There were no considerations of professional ethics bankers were not requiring clients to make a substantial down payments for their loans. Penn Square Bank was becoming the laughing stock of the banking industry until the FDIC declared Penn Square Bank insolvent.
Bankruptcy
Dow Corning was established in 1943 and in the early 60s through mid-90s Dow Corning was manufacturing silicones for breast implants for women who had cancer and also for cosmetic purposes. In the early 1970s some plastic surgeons found that the silicone gel were leaking from their patients breasts implants, but Dow Corning did not make any effort to inquire and do some additional research on the silicones. Dow Corning continued to manufacture silicone as long as the sakes revenue was good and profit was been maximized. The early 1980s more women were experiencing leaks, some of them started suffering from diseases such as lupus, and rheumatoid arthritis.
Dow Corning ignored these cases and continued to deceive these women as long as the sales kept rolling revenue. In 1984 Dow Corning was found guilty of fraud and deceit (UOPX, 1996) more women started coming forward with their cases. The lawsuits increased and Dow Corning was losing most of the lawsuits, and awards were ordered by the court of law. Dow Corning filed for bankruptcy in 1995 to avoid honoring the awards.
To avoid deception and fraud Dow Corning decided to offer settlements of 3.3 billion dollars to women who suffered leaks, diseases, and bad effects from the silicone implants before 1994. Dow Corning had honored the judgments from the lawsuits, and it was a sign of relief and satisfaction. When the revenues of Dow Corning began to increase Dow Corning decided the ethical thing to do was to pay more than 300,000 women who have suffered from the silicone implants.
Conclusion
Penn Square Bank lack of ethics, improper credit approval and lack of research on the oil market contributed to the insolvency of the bank. Dow Corning filed for bankruptcy to avoid paying creditors and lawsuits, eventually Dow Corning bounced back and settled for 3.3 billion dollars.