ShoreBank

Last updated
ShoreBank (SBK)
Type Community development bank
Founded1973
Defunct2010
FateInsolvency
SuccessorUrban Partnership Bank
Headquarters Chicago, Illinois
Key people
Products Financial services, microfinance
Total assets $2.6B USD (2008)
Parent ShoreBank Corporation
Website SBK.com (Archive.org)

ShoreBank was a community development bank founded and headquartered in Chicago. At the time of its closing it was the oldest and largest such institution, and in 2008 had $2.6 billion in assets. [1] It was owned by ShoreBank Corporation, a regulated bank holding company.

Contents

ShoreBank had branches in Chicago's South and West sides, Cleveland, and Detroit. Between 2000 and 2006, ShoreBank issued nearly $900 million in loans to citizens in Chicago, Detroit, and Cleveland. [2] ShoreBank and its affiliated companies had projects in 30 countries. [3]

ShoreBank incorporated environmental conservation into its mission during the 1990s, helping develop a triple bottom line approach to banking, equally prioritizing profits, impact on people, and the impact of a project on the environment. [4] At that time it established ShoreBank Pacific based in Portland, Oregon.

ShoreBank accepted mission-based deposits from across the country through its Development Deposits program, launched in 1982, and its online savings account ShoreBank Direct, launched in 2007. [5]

Although mission-based, the bank's financial performance historically matched or exceeded that of its peer banks. [6] However, the bank faced significant losses in 2009, [7] and as of May 2010, was seeking $200 million in additional capital from major investors and the U.S. government. The bank's losses were related to the recession, though it was not engaged in subprime lending. [8] In the spring of 2010, ShoreBank raised over $150MM in private equity to recapitalize the bank. However, no action was taken on its application for $70MM in TARP funds which it was fully eligible to receive. The combination would have been enough to allow the bank time to work through its troubled loan portfolio.

ShoreBank Corporation was the first bank holding company to combine commercial banking, real estate development, nonprofit loan funds, and international advisory services aimed at community development. Originally developed as a neighborhood development bank for low-income African-American communities, ShoreBank eventually expanded nationally and internationally.

It exceeded its goal of private capital commitments but did not receive requested government support, a condition of the private investors. In August 2010, the bank faced possible insolvency and risked having its deposits taken over by the Federal Deposit Insurance Corporation, which insured its deposits. [9] On August 20, 2010, the bank was declared insolvent, closed by regulators and most of its assets were acquired by Urban Partnership Bank. [10] Some of the more recent management hirees of ShoreBank, in an unprecedented move by the FDIC, were allowed to continue to run the restructured bank, now a part of Urban Partnership Bank. [11] According to the FDIC, the recent hirees "did not contribute to the bank's problems." [12] [13] Sheila Bair, head of the U.S. Federal Deposit Insurance Corporation, devoted several pages to the lack of federal support in her 2012 book and commented that the FDIC sought approval of the injection of federal funds several times, to no avail. [14]

Origin

A ShoreBank branch in Chicago's Bronzeville neighborhood ShoreBankBronzeville.jpg
A ShoreBank branch in Chicago's Bronzeville neighborhood

In 1973 the South Shore Bank attempted to relocate from 71st Street and Jeffery Boulevard in the economically declining South Shore to the Loop. At the time, one third of all apartment buildings in South Shore were tax-delinquent and in danger of abandonment by landlords. Angered by the bank's racist lending practices, community banker-activists Milton Davis, James Fletcher, Mary Houghton, and Ron Grzywinski purchased the bank after successfully petitioning the federal Comptroller of the Currency to stop the move after creating the Illinois Neighborhood Development Corporation. [15] [16] Urban planner Stanley Hallett was a founding board member and was vice president of the bank's holding company its first five years.

Renamed ShoreBank in 2000, it was the nation's first community development bank. During its 37 years of operation, ShoreBank played a critical role in stabilizing and rebuilding many of Chicago's low-income neighborhoods and eventually expanded globally, setting the standard for the development finance industry.

As its range of financial products grew, so did its geographic reach and influence in the banking industry. ShoreBank expanded into low-income communities in Detroit, Cleveland, Michigan's Upper Peninsula, Arkansas, and the Pacific Northwest. Its influence in Arkansas influenced Bill Clinton, then governor to propose the Community Development Financial Institutions Act, which he signed in 1994. In addition, ShoreBank executives assisted in the development of the international microfinance industry. After the collapse of the Berlin Wall, the corporation's consulting affiliate, ShoreBank Advisory Services, assisted banks in Russia and Eastern Europe with small business lending.

Structure

A ShoreBank branch on Mack Avenue in Detroit ShoreBankDetroit.jpg
A ShoreBank branch on Mack Avenue in Detroit

ShoreBank Corporation is the holding company for and with ShoreBank. Its other subsidiaries provided banking, equity investing, consulting, and environmental banking services:

ShoreBank established a number of affiliated nonprofits to provide related financing, technical assistance, and consulting services:

Recognition

State Senator Barack Obama and others celebrate the naming of a street in Chicago after ShoreBank co-founder Milton Davis in 1998. Obamamiltondavis1.jpg
State Senator Barack Obama and others celebrate the naming of a street in Chicago after ShoreBank co-founder Milton Davis in 1998.

ShoreBank, its co-founders, and its affiliates have received numerous awards and honors, including from the magazines Fast Company, [26] Business Ethics , [27] and U.S. News & World Report , [28] University of Notre Dame's Mendoza College of Business, the Independent Community Bankers of America, [29] Mayor Richard M. Daley of Chicago, [30] the Chicagoland Chamber of Commerce, [31] and Governor Ted Kulongoski of Oregon. In 2023, the founders of ShoreBank (Ron Grzywinski, Mary Houghton, and posthumously Jim Fletcher and Milton Davis, received the Ned Gramllich lifetime Achievement Award for Responsible Finance from Opportunity Finance Network.

Former President and Arkansas Governor Bill Clinton is a prominent supporter of the bank. In 1985, ShoreBank worked closely with Clinton to set up the Southern Development Bancorporation, a community development bank serving rural Arkansans. Clinton described ShoreBank as "the most important bank in America" [32] and credited ShoreBank's success with inspiring a movement of community development financial institutions (CDFIs). [33]

Under a grant from the Ford Foundation in the 1980s, ShoreBank worked with Muhammad Yunus to advise him on the growth of Grameen Bank in Bangladesh. Yunus and Grameen Bank were awarded the Nobel Peace Prize in 2006. [34] Later, it worked with BRAC, a second large Bangladeshi organization. [35]

Loan Portfolio Troubles

In 2010 ShoreBank had a troubled asset ratio of 300% compared to a national average for all banks of 15%. Unemployment in many of the neighborhoods where the bank did business rose to as much as 50%; property values fell by 30%. The bank relied heavily on cash flow financing for multifamily buildings. As unemployment spiked beyond levels ever seen before, tenants struggled to pay rent; vacancies increased and landlords got behind in their loan payments. The single family portfolio was also negatively impacted and delinquency rates went higher than historical levels. Once homeowners secured new jobs they quickly came to the bank to refinance. Nine times out of ten the homeowners were laid off from full time jobs with benefits and found multiple part time jobs to provide the income needed to save their house.

After insolvency the new bank was recapitalized through loss-share guarantees from the FDIC and a $367.7 million loss taken by the FDIC insurance fund, and nearly $140 million was invested by Goldman Sachs, Citigroup, JP Morgan Chase, Morgan Stanley and Bank of America. There were no other cases in which large banks lined up to recapitalize a failing bank. [36] In an unusual move the FDIC lawsuit against the bank did not name co-founders, top executives or board members. [37] The new management team of the former ShoreBank was allowed by the FDIC to run the newly formed Urban Partnership Bank. Although ShoreBank's President William Farrow was brought on after regulators ordered ShoreBank to raise additional capital, it is not standard practice for the FDIC to resell a bank to the managers who ran the failed bank. [38]

Related Research Articles

The Reconstruction Finance Corporation (RFC) was a government corporation administered by the United States Federal Government between 1932 and 1957 that provided financial support to state and local governments and made loans to banks, railroads, mortgage associations, and other businesses. Its purpose was to boost the country's confidence and help banks resume daily functions after the start of the Great Depression. The RFC became more prominent under the New Deal and continued to operate through World War II. It was disbanded in 1957, when the US Federal Government concluded that it no longer needed to stimulate lending.

<span class="mw-page-title-main">Federal Deposit Insurance Corporation</span> US government agency providing deposit insurance

The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common. The insurance limit was initially US$2,500 per ownership category, and this has been increased several times over the years. Since the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010, the FDIC insures deposits in member banks up to $250,000 per ownership category. FDIC insurance is backed by the full faith and credit of the government of the United States, and according to the FDIC, "since its start in 1933 no depositor has ever lost a penny of FDIC-insured funds".

<span class="mw-page-title-main">Community Reinvestment Act</span> US federal law

The Community Reinvestment Act is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.

<span class="mw-page-title-main">Community development bank</span>

Community development bank (CDB) or Community Development Financial Institution (CDFI) is a development bank or credit union that focus on serving people who have been locked out of the traditional financial systems such as the unbanked or underbanked in deprived local communities. They emphasize the long term development of communities and provide loans such as micro-finance or venture capital.

A community development financial institution (US) or community development finance institution (UK) - abbreviated in both cases to CDFI - is a financial institution that provides credit and financial services to underserved markets and populations, primarily in the USA but also in the UK. A CDFI may be a community development bank, a community development credit union (CDCU), a community development loan fund (CDLF), a community development venture capital fund (CDVC), a microenterprise development loan fund, or a community development corporation.

<span class="mw-page-title-main">Huntington Bancshares</span> Bank holding company headquartered in Columbus, Ohio

Huntington Bancshares Incorporated is an American bank holding company headquartered in Columbus, Ohio. The company is ranked 521st on the Fortune 500, and is 26th on the list of largest banks in the United States.

<span class="mw-page-title-main">Ron Grzywinski</span>

Ron Grzywinski is a community development banker from Chicago, and one of four founders of ShoreBank. In May 2010 he retired as chair of ShoreBank Corporation and took the position of Advisor to the Board of Directors of ShoreBank Corporation.

The Superior Bank FSB was a Hinsdale, Illinois-based savings and loan association that collapsed in July 2001 with some $2.3b in assets. It was co-owned by the Pritzker family of Chicago.

<span class="mw-page-title-main">Bank</span> Financial institution which accepts deposits

A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.

The New York State Banking Department was created by the New York Legislature on April 15, 1851, with a chief officer to be known as the Superintendent. The New York State Banking Department was the oldest bank regulatory agency in the United States.

<span class="mw-page-title-main">Wachovia</span> Defunct banking company

Wachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo and Company in 2008, Wachovia was the fourth-largest bank holding company in the United States, based on total assets. Wachovia provided a broad range of banking, asset management, wealth management, and corporate and investment banking products and services. At its height, it was one of the largest providers of financial services in the United States, operating financial centers in 21 states and Washington, D.C., with locations from Connecticut to Florida and west to California. Wachovia provided global services through more than 40 offices around the world.

The unbanked are adults who do not have their own bank accounts. Along with the underbanked, they may rely on alternative financial services for their financial needs, where these are available.

A community bank is a depository institution that is typically locally owned and operated. Community banks tend to focus on the needs of the businesses and families where the bank holds branches and offices. Lending decisions are made by people who understand the local needs of families, businesses, and farmers. Employees often reside within the communities they serve.

Mary Houghton is co-founder of ShoreBank, the largest and oldest community development bank. Houghton, along with Milton Davis, James Fletcher, and Ron Grzywinski purchased in 1973 what was then South Shore Bank to fight redlining in the Chicago neighborhood. She retired as president in May 2010.

<span class="mw-page-title-main">Beneficial State Bank</span> American community development bank

Beneficial State Bank is an Oakland, California-based community development bank. The bank was founded in 2007 by billionaire philanthropist and former presidential candidate Tom Steyer and his wife Kat Taylor, to provide loans and banking services to individuals in low wealth communities, including entrepreneurs and existing businesses.

Urban Partnership Bank was a Federal Deposit Insurance Corporation, full-service community development bank in the United States with $1.4 billion in assets. It was established on August 20, 2010 when it acquired the deposits and some of the assets of ShoreBank from the FDIC. It was headquartered in Chicago, Illinois. After chronic losses, it was acquired on Jan 30, 2019 by Providence Bank & Trust.

<span class="mw-page-title-main">Silicon Valley Bank</span> American commercial bank

Silicon Valley Bank (SVB) is a commercial bank division of First Citizens BancShares. The bank was previously the primary subsidiary of SVB Financial Group, a publicly traded bank holding company that had offices in 15 U.S. states and over a dozen international jurisdictions.

<span class="mw-page-title-main">Signature Bank</span> American commercial bank

Signature Bank was an American full-service commercial bank headquartered in New York City and with 40 private client offices in the states of New York, Connecticut, California, Nevada, and North Carolina. In addition to banking products, specialty national businesses provided services specific to industries such as commercial real estate, private equity, mortgage servicing, and venture banking; subsidiaries of the bank provided equipment financing and investment services. At the end of 2022, the bank had total assets of US$110.4 billion and deposits of $82.6 billion; as of 2021, it had loans of $65.25 billion.

A deposit insurance national bank is a temporary bank in the United States that is established by the Federal Deposit Insurance Corporation (FDIC) in the wake of a bank failure under the Banking Acts of 1933 and 1935.

References

  1. ↑ Annual Reports. Archived 2016-11-16 at the Wayback Machine ShoreBank.
  2. ↑ Rafter, Dan. "Uncommon Vision Archived 2006-11-15 at archive.today ", "Motto". Retrieved on January 9, 2007
  3. ↑ Developing International Economies. ShoreBank Corporation.
  4. ↑ Iowa State University. "Investing for Triple Bottom Line Returns", 2006-6-1. Retrieved on January 8, 2007
  5. ↑ Carpenter, Dave. 'Bank with a heart' thrives despite predictions of failure. Archived 2012-07-21 at archive.today Savannah Morning News. 11 June 2007.
  6. ↑ Marshall, Katherine. "ShoreBank gauges success by profit and community impact" Archived 2007-10-12 at the Wayback Machine , Medill News Service, Northwestern University, May 17, 2005, retrieved September 19, 2007
  7. ↑ Daniels, Steve (April 2, 2010), "ShoreBank sees another $101M loss just ahead", Crain's Chicago Business
  8. ↑ Williamson, Elizabeth & John D. McKinnon (May 15, 2010), "Bank Rescue Down to Wire", The Wall Street Journal
  9. ↑ Roeder, David (2010-08-06). "ShoreBank on the brink". Chicago Sun-Times . Archived from the original on 2010-08-20. Retrieved 2010-08-06.
  10. ↑ Selyukh, Alina (2010-08-20). "Regulators Close Chicago's ShoreBank". ABC News . Retrieved 2010-08-20.
  11. ↑ Guy, Sandra (August 21, 2010). "Feds seize ShoreBank, new management named". Chicago Sun-Times . Archived from the original on August 22, 2010.
  12. ↑ Gordon, Marcy (August 20, 2010). "Regulators shut down big Chicago bank, 7 others". Yahoo! News. The Associated Press. Archived from the original on August 22, 2010. Retrieved 21 August 2010.
  13. ↑ J.E. Post and Fiona Wilson, Too Good To Fail, Stanford Social Innovation Review, Fall, 2011,
  14. ↑ "Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself," by Sheila Bair, Free Press, 2012.
  15. ↑ Douthwaite, Richard. ""How a Bank can Transform a Neighborhood", "Short Circuit". Retrieved on January 8, 2007
  16. ↑ "Milton Davis's Biography". The HistoryMakers. Retrieved 2020-06-29.
  17. ↑ "Our History - Beneficial State Bank". www.beneficialstatebank.com.
  18. ↑ ishan.perera.enc. "About". Palladium Impact Capital. Retrieved 2022-01-16.
  19. ↑ "News about ShoreBank" (PDF). Archived from the original (PDF) on 2011-07-27.
  20. ↑ "Message from the President"
  21. ↑ "About Craft3".
  22. ↑ "News on ShoreBank" Archived 2011-01-09 at the Wayback Machine /
  23. ↑ Jarboe, Michelle; Dealer, The Plain (2016-04-08). "Cuyahoga Land Bank acquires ailing Glenville biz center". cleveland. Retrieved 2022-01-16.
  24. ↑ Henderson, Tom, (August 23, 2010) "ShoreBank Enterprise Detroit unaffected by namesake bank's closure, will get new name″, Crain's Detroit Business Retrieved on September 6, 2010.
  25. ↑ Fund, Detroit Development. "Enterprise Detroit Announces Name Change to Detroit Development Fund and Plans Move to Harmonie Park". www.prnewswire.com. Retrieved 2022-01-16.
  26. ↑ Profits with Purpose: ShoreBank. Archived 2008-12-06 at the Wayback Machine Fast Company.
  27. ↑ First Sustainable. "Business Ethics Announces Six Social Investment Award Winners Archived 2007-02-10 at the Wayback Machine ", "SRI News", 2000-4-2. Retrieved on January 8, 2007
  28. ↑ Schulte, Bret. Ron Grzywinski and Mary Houghton: Community Bankers. U.S. News & World Report. 12 November 2007.
  29. ↑ Cook, Tim. "ICBA Announces National Community Bank Service Award Winners", "ICBA", 2005-4-29. Retrieved on January 8, 2007
  30. ↑ Clutter, Charles. "Mayor Daley Awards Local Companies Employee Development Achievements" (pdf) Archived 2006-12-23 at the Wayback Machine , "workforceChicago2.0", 2004-6-2. Retrieved on January 8, 2007
  31. ↑ Chicagoland Chamber of Commerce. "Four Chicagoland Businesses Recognized for Workplace Innovations", "www.chicagolandchamber.org". Retrieved on January 8, 2007
  32. ↑ Douthwaite, Richard. How a Bank Can Transform a Neighbourhood., "Short Circuit". Retrieved on January 8, 2007
  33. ↑ Clinton, William. "Remarks by the President in Announcement of Community Lending Initiative. Archived 2006-09-18 at the Wayback Machine " White House South Lawn, 1993-7-15. Retrieved on January 8, 2007
  34. ↑ Glenn, Brandon. "ShoreBank leaders had hand in Nobel Prize", Crain's Chicago Business, 2006-10-16. Retrieved on January 8, 2007
  35. ↑ "Over Two Decades and Eight Thousand Miles: The Cross-continental Collaboration on Development Finance of Two Social Enterprises, ShoreBank Corporation and BRAC" by Mary Houghton and Fiona Wilson, Journal on Corporate Citizenship, Autumn 2012, page 75-99.
  36. ↑ Fitzpatrick, Dan (21 August 2010). "Regulators Seize ShoreBank; Management Takes Over" – via www.wsj.com.
  37. ↑ "FDIC settles ShoreBank lawsuit for $17 million". 19 November 2015.
  38. ↑ "Politically Connected ShoreBank Of Chicago Fails And Reincarnated At Taxpayer Expense - Problem Bank List". problembanklist.com. 21 August 2010.

Further reading

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.