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Lending Structure to Blame for Bank Closure

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A non-diverse portfolio is being blamed for the closure of Chicago-based Corus Bank. It’s the 90th bank the FDIC has shut down this year.

Corus is one of the largest banks to close during this recession. The failure is solely based on the downturn of the real estate market. The bank made loans to many high-end condominium projects around the country, some of which were later reported as non-performing loans. That means the borrower was unable to pay the amount due.

Paola Sapienza is a finance professor at Northwestern University. She says Corus’s main problem was that it didn’t have a diverse lending structure.

SAPIENZA: If you lend everything to a specific area in a specific residential real estate, of course as the real estate market collapses you have no buffer of any type.

MB Financial Bank will take over Corus’s 11 branches and assume its deposits. The FDIC estimates the failure will cost the Deposit Insurance Fund $1.7 billion.

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