Penn Square National Bank, the Oklahoma City bank that failed July 5, obtained 60 percent of its deposits from "money brokers" who were paid by the bank for bringing in funds, Federal Deposit Insurance Corp. investigators have discovered.

Desperate for funds to finance its booming energy lending business, the bank became dependent on money brokers and had to offer higher and higher interest rates to get deposits, the probe of the bank failure has revealed.

On more than one occasion two different Penn Square officials "bid against each other for the same funds on the same day," FDIC's chief bank supervisor James Sexton disclosed yesterday in a letter to Rep. Benjamin Rosenthal (D-N.Y.), chairman of a House subcommittee investigating the bank failure.

Once, Sexton reported, one "officer representing the energy division offered a rate for a particular certificate of deposit that was four points above that offered by a colleague representing the operations department."

Sexton said the money brokers themselves were not the cause of the bank's demise. It failed, he said, because of "management's imprudent policies and control procedures."

Penn Square's lending spree ended last summer when the Comptroller of the Currency found so many bad loans that it ordered the bank closed and the FDIC took over. Many of the nation's largest banks bought billions of dollars of loans from Penn Square and stand to lose hundreds of millions on those loans.

FDIC officials say the loans from brokers were not the cause of the bank failure, but were a symptom of the bad management that destroyed Penn Square, a tiny shopping center bank that in five years grew from $30 million to more than $500 million in assets.

In January, Penn Square had $20 million in brokered funds on deposit. By early May that figure had risen to $150 million and by early July there were $282 million of high-cost brokered deposits on Penn Square's balance sheet.

Most of those deposits were made by credit unions and savings and loan associations. Most of these thrift institutions were directed to Penn Square by money brokers, who were seeking funds for Penn Square and other banks.

Many of the savings and loan associations and credit unions who put their funds in Penn Square will lose at least a portion of the deposit. The Federal Deposit Insurance Corp. insures only the first $100,000 of a deposit. Most of the brokered funds were in so-called certificates of deposit that were bigger than $100,000.

The FDIC, as receiver for the failed bank, has issued 980 "receivers certificates" worth $172.8 million to uninsured depositors as evidence of their claims against the bank, but how much of that the will get back is unknown.

Not only did Penn Square need funds to support its own lending binge -- it also needed the deposits to finance loans it made and then sold to other banks.

During the last two years of its existence the bank sold more than $2 billion in loans it made to other banks. Half those loans were sold to Chicago's Continental Illinois National Bank. Other big banks such as Chase Manhattan, Seattle First, and Michigan National also "participated" in loans originally made by Penn Square. Many of those loans were bad, too, and officials at several banks -- including Continental, Chase and Seattle First -- lost their jobs because of Penn Square.