The myths of ShoreBank’s failure

Curtis Black:

The conservative contention that ShoreBank was politically favored, with connections to Presidents Clinton and Obama among others, might have been rendered moot when the FDIC closed the bank in August.  But Fernholz notes “a new conservative conspiracy theory” – “regulators were letting the FDIC’s insurance fund absorb losses so that the social experiment could start anew.”

In fact the consoritum of investors who formed Urban Partnership Bank was tagged to purchase the bank’s assets only after hundreds of banks passed on the same opportunity.  And the new operation will share ShoreBank’s losses with the FDIC, which would have been on the hook for the entire bill otherwise.

Now “ShoreBank’s experience is being taken as a call to end government support for community lenders, as though encouraging credit access in underserved communities is the moral equivalent of bailing out Wall Street’s megabanks,” says Fernholz.  (This echoes the contention that the Community Reinvestment Act caused the crash by requiring investment in low-income communities; but the bulk of subprime loans came from unregulated mortgage companies and investment banks, and their securitization was a project of the higest rollers.)

Fernholz argues instead that ShoreBank’s experience is emblematic of the challenges facing small banks.  And he cites bankers who say “ShoreBank’s failure was less because of its mission and more because of its busienss practices” – it “tried to accomplish too much, too fast.”

Read the whole thing.

BTW, I noticed that the Chatham facility of the new Urban Partnership Bank was finally adorned with the name of the new entity instead of ShoreBank at least a week ago.