After three extensions, today is the deadline for Chicago’s ShoreBank to come up with enough cash to forestall a takeover by federal regulators. But Crain’s Chicago Business reports that it looks like the small community bank won’t make it despite receiving $75 million in Troubled Asset Relief Program (TARP) funding and a promised $145 million private bailout from some of the nation’s biggest banks following a highly unusual flurry of activity on its behalf.
The Federal Reserve says ShoreBank’s capitalization is “still not good enough,” and the politically-connected bank is unlikely to get $75 million more in federal funds to keep it afloat. Earlier this year, The Fed ordered ShoreBank to stop paying shareholder dividends, interest or even principal until the bank returned to a “well-capitalized” status.
The Illinois Student Assistance Commission, a state-run college funding program, reportedly lost over 80 percent of the $12.7 million it invested in the bank, including money parents have been saving for their children’s education.
The Obama administration denies pressuring Goldman Sachs and other federal bailout recipients to give ShoreBank an emergency cash transfusion, but TARP special inspector general Neil Barofsky,
is looking into just such allegations.
Charlie Gasparino of Fox Business Network also reported that Federal Deposit Insurance Corp. chairman Sheila Bair was one of those who made personal phone calls to help ShoreBank raise the needed capital. If so, it’s highly inappropriate for the nation’s chief bank regulator to pitch a bailout for one individual bank when her agency is busy closing down scores of others with similar weak balance sheets.
Bair is already on record approving of ShoreBank’s fatal policy of giving sub-prime mortgages to people in low-income Chicago neighborhoods, revealing a much-too-cozy relationship that members of Congress will undoubtedly want to know more about.
In 2007, just nine months after becoming FDIC chairman and one year before the housing market collapse, Bair praised ShoreBank co-founder Ron Grzywinski for helping to “identify and remove obstacles that hinder economic inclusion and block each of you from tapping a potentially huge market of new customers,” making the Chicago bank supposedly “too good to fail.”
That’s what they said about Fannie Mae.