Regulators shut down ShoreBank

August 20, 2010 (CHICAGO)

ShoreBank was also known for promoting redevelopment and minority businesses.

ShoreBank will reopen Saturday under a new name: Urban Partnership Bank.

ShoreBank was founded in 1973, but has had shaky finances in recent years.

As with other bank takeovers in recent months, customers' money is safe.

The concern comes in communities where the big banks have traditionally shied away from making loans. When they wouldn't, ShoreBank would.

The question Friday night is whether the new bank continue to do so

30 years ago, Leola Jones dreamed of owning her own pharmacy. She says a loan from ShoreBank made it possible.

"They wanted me to have it because they said I was here at the right time, the right face, the right profession," said Jones. 30 years later, she says, "I'm still here!"

On Friday night, Jones was among those watching as federal regulators took control of ShoreBank and its assets. In recent years, the bank made too many real estate and home improvement loans that were not paid back.

When all of the branches reopen with a new name, they promise federal regulators they will have the same commitment to lending in low and moderate income communities.

"The people that caused the problem, that really got ShoreBank into the position where it had to be closed, they're not going to be the ones transitioning over," said FDIC spokesman David Barr.

William Farrow, the new CEO, is a former executive with Bank One and the Chicago Board of Trade. The money to buy ShoreBank's assets is coming from other lenders including Chase, Citigroup and Goldman Sachs.

Industry expert Justin Barr of Loan Workout Advisers says those big banks actually get government credit for lending in poorer neighborhoods.

"Goldman Sachs is the great white shark of Wall Street, they're not known for their altruism," said Barr. "I think it comes down to political brownie points."

What matters to most here is access to capital in the form of loans and relationships.

"If any of my money was short coming in I could just run across the street, sign my name, and get the money I needed," said Jones.

The failure of ShoreBank will cost the federal deposit insurance fund $367 million. It is not taxpayer money, but rather a fund created by fees paid by banks over the years.

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