ONE OF THE MOST IMPORTANT stories for the nonprofit sector last week crept by with nary a mention in the press about its connection to nonprofits. ShoreBank, the nation’s preeminent community development bank, finally succumbed to a long spiral of financial troubles. ShoreBank will now be acquired and managed by a new entity, the Urban Partnership Bank, pulled together with investment support from major financial institutions such as Goldman Sachs, Citigroup, and JPMorgan Chase among others.
This iconic institution, with a current asset value of $2.2 billion, is almost four decades old. ShoreBank’s establishment in 1973 preceded the Home Mortgage Disclosure Act, passed in 1975, and the Community Reinvestment Act, signed by President Jimmy Carter in 1977. The message of the Community Reinvestment Act was that banks had to cease their destructive, neighborhood-destabilizing, discriminatory lending practice known as “redlining.” ShoreBank was out to prove—successfully for most of its existence—that community reinvestment was also good business. For most of ShoreBank’s history, business was good, and after its first few years, it was making profits and expanding.
But community development banks are no less immune to the economic downturn than their commercial peers, especially if they are located in Illinois and invest primarily in the state. One of out seven bank failures in this recession has occurred in Illinois, with ShoreBank’s extensive holdings in Chicago’s South and West Side neighborhoods, making it a strong candidate for failure during the economic downturn. The FDIC’s seizure of ShoreBank and seven others last week brought the list of official bank failures so far in 2010 to 118, compared to 140 in all of 2009 and only 25 in 2008 (these figures don’t count banks that avoided FDIC actions due to last minute acquisitions or mergers).