ShoreBank—a Chicago financial institution that for more than 30 years provided loans in low- and moderate-income neighborhoods in the city and later in Cleveland, Detroit, and the Pacific Northwest—failed late last week and was seized by the Federal Deposit Insurance Corporation, the Chicago Tribune reported. The bank had been struggling for months to raise enough money to stay afloat, according to the paper.
A consortium of large banks and foundations, including JPMorgan Chase, Goldman Sachs, and the Ford Foundation, bought the bank’s deposits and most of its assets in the Midwest. It has reopened as the Urban Partnership Bank. OneCalifornia Bank, another community-development financial institution, bought ShoreBank Pacific, which was not part of the seizure.
An article in The Economist points to the severity of the downturn in the areas where ShoreBank made loans as well as its overemphasis on mortgage lending as important factors in the bank’s demise.
ShoreBank’s failure is an important story for charities because of the bank’s long and close association with the nonprofit world, Rick Cohen writes in The Nonprofit Quarterly.
For example, the bank created the Capacity Plus Loan Program through which deposits by foundations, like the John D. and Catherine T. MacArthur and F.B. Heron foundations, could be used as guarantees for emergency lines of credit for community-development and arts organizations.
Meanwhile, ShoreBank’s Chicago location has turned the bank’s failure into a political issue.
Conservative commentators, including Michelle Malkin, argue that ShoreBank was able to survive because of political pressure by donors and politicians with ties to President Obama.
At the same time, some liberal pundits are taking the administration to task for not doing more to prevent ShoreBank’s failure.
“While the Treasury Department found hundreds of billions of dollars to rescue giant Wall Street institutions, it refused to come up with the $75-million for which ShoreBank qualified under the TARP program,” Robert Kuttner, co-editor of The American Prospect, writes on The Huffington Post.
0 Responses to A Major Community-Development Bank’s Closure—and Rebirth
joe5991 - August 26, 2010 at 3:09 pm
Michelle Malkin is not a conservative commentator – she is a lunatic commentator. As for the liberal complaints, the bank failed. The FDIC did what it was supposed to do and did with literally hundreds of bank groups just like it when it failed to meet the liquidity tests. The fact is the failures in this institution are the result of business decisions made by the bank – not because of some out of market attack or some outside disaster. The losses were material and the failure belonged to the previous management. We need to recognize that when a social enterprise is in the same pool as everyone else, it has to play by the same rules as everyone else. ShoreBank had a good run and should be recognized for the good things they did – their problems were theirs, the management owned them and took the consequences. That’s life in the market.
ralawrence - August 27, 2010 at 7:47 am
Shorebank’s beginnings are a tribute to philanthropy and community activists.I was on leave from Cummins Engine Foundation (CEF)running for Alderman in 1972 when South Shore National Bank asked to move from its community location to a downtown tower built by Standard Oil. Community residents filed an objection with the Comptroller of the Currency who conducted a hearing in the community and declined to approve the move. Subsequently, South Shore National was bought by a group led by Ron Gryzwinski, who had earlier askedme and Ed Booth at CEF to support his radical proposal. I am proud to be able to say that CEF provided the first foundation support to Grzwinski and Shorebank as I am sure he will attest.Our involvement was almost secret because Irwin Miller made a clear distinction between charitable giving and company-related philanthropy and did not allow us to talk much about the work of the foundation for fear of smudging the line between the two.Richard Lawrence,CEF Program Officer 1969-1975