When Jake F. Butcher was running for governor, he told a heckler who questioned his freewheeling business practices that his goal in life was "to make more money than Rockefeller."

At the age of 46 he still has time, but the odds against him lengthened considerably last week. He lost the cornerstone of his growing financial empire with the collapse of the United American Bank, the fourth-largest commercial bank failure in this country.

United American, with deposits of $794 million, was shut down Monday after federal bank examiners determined it was insolvent. Its accounts have been taken over by a Memphis bank-holding company.

The demise of United American stunned Knoxville, which had watched Butcher's storybook climb from genteel poverty in rural Maynardville to the top of the local establishment.

The flashy, silver-haired Butcher was the city's biggest booster. The glass tower that housed his bank dominates the skyline. The remnants of the 1982 Knoxville World's Fair, Butcher's brainstorm and his obsession, stand as a monument to his persuasive powers. United American financed real estate and business developments all over the area, and Butcher was a leading source of campaign money for Tennessee Democrats.

Then even faster than it had risen, Butcher's rocket flamed out, and in the aftermath, there is no shortage of opinion around Knoxville over the reasons why.

The Federal Deposit Insurance Corp., which sent 200 examiners into United American and four other banks in Butcher's empire on a single day late last year, concluded that the bank was engaging in "unsafe or unsound banking practices," including the issuance of loans with inadequate collateral and "extending poor quality loans to directors and their interests."

Butcher contends the bank "didn't have to fail. It didn't have to close." He has acknowledged that his attention to the banking business was distracted by the World's Fair operation just as the recession was pinching borrowers.

Then the bank's problems were aggravated last summer when the failure of the Penn Square National Bank in Oklahoma City frightened New York banks that had bought loans from United American. Some of these loans were sent back, eroding the bank's liquidity.

But Butcher said United American was "never insolvent . . . . Time just ran out" before he could arrange a merger with another institution.

Charles A. Terrell, chairman of Sterchi Brothers Stores Inc., a furniture-retailing chain, and a director of United American, agrees. "The bank could have been saved," Terrell said.

He stopped short of saying that the collapse of the bank was the result of some political campaign against Butcher, but he said "a lot of folks in this community" think exactly that.

One of them is Mayor Randy Tyree, who said state banking commissioner W.C. (Billy) Adams, an appointee of Republican Gov. Lamar Alexander, was conducting a "vendetta" against Butcher. Butcher, a Democrat who befriended and lent money to another fast-moving southern banker, Bert Lance, ran against Alexander in a bitter contest in 1978, and backed Tyree in an unsuccessful effort to oust Alexander from the statehouse last November.

Alexander and banking commissioner Adams said politics had nothing to do with it. Adams said it was the federal regulators, not the state, who put the heat on the bank, and that he tried hard to save it, an assessment confirmed by some directors of the bank.

The real problem at United American, one director said, was "Butcher's flamboyant style. The wife of a banker in Knoxville, Tenn., should not drive a Rolls Royce. They didn't have to use leased jets to fly to Nashville and Chattanooga. It attracts attention. People thought this was depositors' money being spent."

Until two weeks ago, Butcher seemed to be living the kind of life that most people only dream of. He was rich, handsome, and, at least around Knoxville, powerful. He lived lavishly with his handsome family on an estate called "Whirlwind." He traveled the world. He had dined at the White House.

Whirlwind, in neighboring Anderson county, an immense house on 27 rolling acres with a private lake, is appraised by the county at $881,400, and apparently is mortgage-free.

Local lore says that Whirlwind has 21 bathrooms, but Butcher himself has said it has only 15, one for each of the years when he and his family had to use an outhouse because the family home lacked indoor plumbing.

Those days of hardship ended when his father, who ran a general store, scraped up the money to buy a tiny bank, where Butcher worked for a time as a janitor before being promoted to teller.

After college and service in the Marine Corps, Butcher parlayed a one-truck oil delivery route into a profitable Amoco products distributorship that gave him the money to buy his first small bank.

As a sideline to banking, he and his brother, C.H. Butcher Jr., ran a credit life insurance company, using the premium income to expand their holdings. He acquired United American here in a stock proxy fight in 1975, operating on borrowed money.

"He showed me how to build an empire entirely on leverage," one director said.

United American became the center of his operations, but it could not contain his ambition. Having failed in a campaign for governor in 1974, he tried again in 1978. Beaten by Alexander, he turned his attention to the development of the World's Fair, which he saw as a boon to the regional economy that would benefit his bank and its clients. The fair itself broke even, but it provided little stimulus to the overall economy of the area, creating problems for projects financed by United American, expecting rapid growth.

Federal bank regulators, and some bank directors, say United American's problems were more fundamental.

Despite Butcher's protests, it seems clear that banking practices at United American were at least unorthodox. The list of the bank's debtors has been sealed by court order, but the bank's records showed heavy concentrations of loans with a relatively few borrowers, including loans to directors, their relatives and other "insiders" that equaled 114 percent of equity capital.

A year ago the bank reported large loans outstanding to Butcher's brother, to Fred R. Langley, a prominent local businessman who was a member of the bank's executive committee, and to H. Pat Wood, a director of the bank and developer of the building where the bank had its main offices.

Another practice that attracted the FDIC's attention was the movement of questionable loans around from the bank to other banks in which Butcher, his family, or associates, had controlling interest--an attempt, the investigators say, to prevent discovery of the loans by examiners from the FDIC.

Late in its investiation, the FDIC issued a number of "cease and desist" orders to United American seeking to stop certain bank practices. In one such order, the agency described this complex transaction:

In October, United American sold $16 million in "adversely classified credits"--bad loans--to Southern Industrial Banking Corp. Then in November and December, although it had no legal obligation to do so, it repurchased the entire package. The chairman of Southern Industrial is Jake Butcher's brother, C.H. Jr. Their father, C.H. Sr., is on the board of directors. Edward C. Browder, chairman of Harriman Oil Corp., was listed as a director of both Southern Industrial and United American.

The FDIC, its suspicions raised, sent examiners to all of Butcher's banks on Nov. 1, the day after the World's Fair closed, and found bad loans that had been traded back and forth from bank to bank.

The magnitude of all of the bad loans may exceed $60 million, according to federal examiners. First Tennessee National Corp., which took over United American, said it will have to write off $52 million of the failed bank's credit losses.

According the bank's audited financial statements for 1982, United American wrote off $9.3 million in uncollectable loans last year and was carrying a reserve of only $4.8 million to cover potential loan losses.

United American officials insisted they could recover. In a lawsuit that sought unsuccessfully to have the FDIC investigation derailed by a federal judge here, the bank said that "at no time whatsoever did the board of directors of UAB believe that the assertions of the FDIC that massive loan losses were inherent in the UAB portfolio were accurate."

The FDIC convinced Adams, however, that the potential write-offs were so great that they would cover more than the $40 million of last-minute capital that Butcher raised in his scramble to save the bank, and therefore UAB was insolvent.

Ousted last week from his showcase bank, Butcher retreated to his estate. He said he was "severely wounded financially" but "not bitter, just puzzled," about why the FDIC rejected his last-minute attempts to save the bank with an infusion of new capital.

But even now, Jake Butcher is not destitute. He still owns most of the stock in four other banks in Tennessee and Kentucky which the FDIC has pronounced solvent. He owns the Amoco distributorship that first gave him the money to get into banking.

However, Butcher resigned yesterday as chairman of United American Bank of Memphis and agreed to sell his interest in the bank, which was not connected to the Knoxville bank.

Butcher said he had "never been so shocked or stunned by anything" as the collapse of his flagship bank, but it seemed by the end of the week that he was coming off the ropes. By Friday an associate said he was too busy to take phone calls from the press because he was "doing some deals."