August 26, 2010 | Read Time: 2 minutes
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.
