ShoreBank's Failure Sparks Credit Worries in Low-Income Neighborhoods
The closure of ShoreBank Friday afternoon marked the end of an era. A new institution called Urban Partnership Bank is taking over many of the bank's remaining assets and says it will continue ShoreBank's history of lending in low-income neighborhoods. That history dates back 37 years with an idea hatched by four idealistic young bankers. But the recent housing meltdown - and the bank's own missteps - sent ShoreBank into a death spiral.
ShoreBank's motto was, "Let's change the world."
In practice, that translated into simple things like planting plum trees and mowing the lawn.
INGRID SPINKS-LANE: Envision this just nothing but weeds all up and down here.
Ingrid Spinks-Lane stands on a corner in Chatham, a neighborhood on Chicago's South Side, with her husband Pierre Lane.
She's pointing out the shrubs, trees and flowers her husband planted after they bought this apartment building with a ShoreBank loan in 2008.
SPINKS-LANE: When we purchased the building, I think the first thing you did was cut the grass, and the ladies across the street stood up and clapped.
That's the kind of block-by-block transformation the ShoreBank founders envisioned.
Spinks-Lane and her husband have been customers since 1995.
They say other banks wouldn't lend to them, but ShoreBank took a gamble.
That helped the couple start buying and renovating apartment buildings - some in pretty rough shape.
PIERRE LANE: Some of the times, they would tell me, Pierre you're nuts for thinking you can turn this around, and we would laugh, together, not behind each other's backs. We would laugh - I'll prove you wrong. And a lot of times, they'd say, we want you to prove us wrong, let's do this thing.
That "why not?" attitude is what launched ShoreBank back in 1973.
The founders bought a failing bank in Chicago's South Shore neighborhood just as other businesses were fleeing.
In a speech at the University of Notre Dame two years ago, founder Ron Grzywinski described the devastation caused by banks refusing to lend.
GRZYWINSKI: In those days, on the South and West sides of Chicago, the combination of blockbusting and redlining was quickly turning vibrant neighborhoods into troubled ones.
The ShoreBank founders wanted to revitalize low-income neighborhoods and make a profit at the same time.
Even Bill Clinton took notice - wanting to replicate the idea in Arkansas in the 80s.
ShoreBank spread itself in a lot of directions - from micro-lending in Bangladesh to organic dairies in the Pacific Northwest.
It started to increase lending a lot just before the housing market started to crater.
Many customers then couldn't pay their loans and ShoreBank let them delay payments.
David Greising covers business for the Chicago News Cooperative and for WBEZ's Eight Forty-Eight.
Greising says ShoreBank let its ideals get in the way of managing its business.
GREISING: They didn't want to flip a switch overnight and all of a sudden become a snidely whiplash kind of banker and start foreclosing on properties, so their social mission conflicted with their ability to run a successful or a surviving business.
Then ShoreBank needed a bailout.
But in the end, the Treasury Department didn't come through with bailout money.
ShoreBank managed to cobble together a new future as Urban Partnership Bank, with money from investors like Bank of America and GE Capital.
They say they'll continue ShoreBank's mission, but some ShoreBank customers are worried.
Ingrid Spinks-Lane and Pierre Lane say they???re afraid their apartment rehab days are over.
LANE: Now this is your kitchen here, we'll have to underlay the flooring - this hardwood is too decayed here
Right now they're fixing up another apartment building they bought with a ShoreBank loan.
It's been a financial struggle because ShoreBank couldn't lend them rehab money last year.
The Lanes say even with the new Urban Bank Partnership, they're not sure they'll get the credit they need to rehab more buildings.
LANE: ShoreBank was not afraid to pour the dollars that were needed in the community. Are other banks going to do that? I don't know, but I just can't see it happening.
And if that's the case, Lane says the boarded up, vacant buildings that have multiplied in recent years may stay that way for a long time.