As the Central Illinois 912 Project has addressed previously on BigGovernment.com, Shorebank is a community bank based out of Chicago that is engaged in microfinancing – a hybrid of capitalism and social justice. They have been supported and promoted by individuals like Van Jones, President Obama, President Clinton, and Secretary Clinton. They have also become heavily involved in the financing of green projects (see here and here).

Interestingly, Shorebank is currently seeking support from a few large banks –all of which have received federal bailout money from the Toxic Asset Relief Program (TARP) and are Shorebank stockholders. These banks include Citigroup, Bank of America, and Chase. Citigroup initially received $25 billion in taxpayer money (plus another $20 billion soon after), and Bank of America initially received $15 billion (plus another $20 billion after that). Neither of these banks has completely paid back their TARP loan. Chase also received $25 billion in bailout funds, but repaid its loan in December of 2009. So rather than seeking a bailout from a state that has a $13 billion budget deficit, Shorebank is seeking to be bailed out by banks that have already been bailed out by federal taxpayers – which is, in essence, an indirect, federally-funded bailout.

Interestingly, Shorebank is currently seeking support from a few large banks –all of which have received federal bailout money from the Toxic Asset Relief Program (TARP) and are Shorebank stockholders. These banks include Citigroup, Bank of America, and Chase. Citigroup initially received $25 billion in taxpayer money (plus another $20 billion soon after), and Bank of America initially received $25 billion (plus another $20 billion after that). Neither of these banks has completely paid back their TARP loan. Chase also received $25 billion in bailout funds, but repaid its loan in December of 2009. So rather than seeking a bailout from a state that has a $13 billion budget deficit, Shorebank is seeking to be bailed out by banks that have already been bailed out by federal taxpayers – which is, in essence, an indirect, federally-funded bailout.

However, it may also be surmised that Shorebank may instead be the direct recipient of bailout money. The Department of Treasury has suggested that it may use TARP funds to assist “Community Development Financial Institutions” (CDFIs). The Treasury defines a Community Development Financial Institution as

… a financial institution that works in markets that are underserved by traditional financial institutions. CDFIs are certified by the Department of the Treasury’s CDFI Fund, which was created for the purpose of promoting economic revitalization and community development in low-income communities.

In February, Secretary Geithner proposed “enhancement” to TARP funds specifically aimed at community development banks that would allow them to receive capital investment funds at a 2% rate (compared to the standard 5% rate) and to receive federal TARP funds that would be matched to funding received from private institutions. Chicago Congresswoman Jan Schakowsky wants ShoreBank to be eligible for such funding and has even suggested that such funding would be equivalent to a jobs program for the area. “Plain and simple, this is a jobs program,” she says. “The funds from this program will go directly to the people and communities that need it most which will expedite hiring and rebuild a vibrant economy”.

Shorebank has received free consulting assistance from Promontory Financial, which is headed by a former director of Shorebank, Eugene Ludwig. Ludwig also helped found CapGen, an entity that invests primarily in community banks. Ludwig was formerly Comptroller of the Currency during the Clinton administration. This would not be the first time that Promontory Financial assisted in raising capital for Shorebank. In 2007, Promontory was a key player in a transaction where TIAA-CREF, a real estate developer and financier, deposited $22 million with Shorebank. TIAA-CREF also supported Shorebank in 2009 with the same type of funding via consultants at Promontory. Receiving funding by similar means now would likely help Shorebank raise private funding that would be matched by federal TARP dollars.

What might be the issue with Shorebank? Could they be the next in the line of banks about to fold, or are they the next in line to receive bailout money (either indirectly or directly)? Will they do the unprecedented and become one of the first entities to be bailed out by a state that itself has a $13 billion deficit? With its promotion of green development and new carbon credit distribution, could Shorebank become one of the first banks to be deemed too “green” to fail?


Crossposted here.