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ShoreBank deserves a fair shot at survival: What do regulators want?

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WASHINGTON -- What exactly does Chicago's ShoreBank have to do to survive?

The future of the community bank, headquartered in South Shore, hinges on getting a precise answer from the federal government regulators weighing its fate.

And soon.

Last October, President Obama created a new program -- called the Community Development Capital Initiative -- to save banks, thrifts and credit unions committed to the mission of putting 60 percent of their lending into neighborhoods underserved by "traditional" financial institutions.

The program is an offshoot of TARP -- the federal Troubled Asset Relief Program -- President Bush pushed through in 2008 as the economy was collapsing.

ShoreBank applied for $75 million from the program, and a few weeks ago its executives thought they complied with what the regulators wanted: ShoreBank made management changes and rounded up $165 million from a group of Wall Street financial institutions -- JPMorgan Chase, Goldman Sachs, Citigroup and GE Capital.

The Treasury Department established a process where the applications of the community financial institutions such as ShoreBank are reviewed: a "council" made up of representatives from the Federal Deposit Insurance Corp., Comptroller, Office of Thrift Supervision and the Federal Reserve. ShoreBank must win approval from this "council" before its application can move to the Treasury for more scrutiny.

Now word is coming to ShoreBank executives -- unofficial, nothing in writing -- that whatever ShoreBank has done, it's not enough.

ShoreBank has unusual roots. It is a pioneer in community lending. Its founders stepped in to acquire the bank -- then known as South Shore National Bank -- in the early 1970s, at a time traditional banks were redlining Chicago neighborhoods with any minority populations. The story of the sorry role banks and federal banking policies played in furthering racial divides in Chicago by real estate redlining and blockbusting is well told in the book Family Properties by Beryl Satter.

ShoreBank's battle to survive has been complicated by high-stakes politics having little to do with the bank's balance sheets.

Because it is a South Side Chicago institution, it is a target of suspicion in some circles by people who wonder about favoritism because, well, President Obama and first lady Michelle are South Siders, as are some of their top advisers, including Valerie Jarrett. (Disclosure: I have had a CD at the bank for about 15 years.)

Actually, back in the day, the big boosters of ShoreBank's onetime unique investment and lending programs in poor communities were former President Clinton and then first lady Hillary, who got to know about the bank while still in Arkansas.

Rep. Judy Biggert (R-Ill.) on May 19 wrote the White House asking about "perceived involvement" of high-ranking Obama administration members intervening on ShoreBank's behalf. The White House never got back to Biggert, which was silly. She deserved an answer. In the void, Biggert tried to attach to the sweeping financial reform bill the House and Senate are working on a measure calling on the FDIC inspector general "to probe the use of inappropriate political pressure" to "rescue of politically-favored banking institutions."

The White House on Wednesday sent me a statement denying any intervention in any way on behalf of ShoreBank.

Biggert Chief of Staff Kathy Lydon told me, "This amendment is not about ShoreBank; it's about misuse of political influence. We would love it if ShoreBank is saved, so long as it is done without political favoritism."

I'm told that some reports about demands from the Federal Reserve calling for ShoreBank to come up with tens of millions of dollars more are not right. ShoreBank officers, I am told, cannot get a specific answer when they ask if they need to raise more money. They should get it.

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Lynn Sweet

Lynn Sweet is a columnist and the Washington Bureau Chief for the Chicago Sun-Times.

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This page contains a single entry by Lynn Sweet published on June 25, 2010 5:41 AM.

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