The sorry end to a bold banking experiment

“LET’S change the world”: ShoreBank’s slogan shouted that the Chicago-based lender saw itself as not just a bank but the leader of a movement. Founded in 1973, it set out to prove that money could be lent profitably to poor people in poor neighbourhoods. For 35 years it thrived but the financial storm that hit in 2008, and the economic downturn that followed, proved its undoing. On August 20th the Federal Deposit Insurance Corporation (FDIC), the bank’s regulator, called time on its experiment in what became known as community-development finance.

Like many financial institutions, ShoreBank was hit hard by America’s housing bust. Yet in the first few months after the house-price bubble burst, Ron Grzywinski, a founder of the bank, was able to contrast the low default rates on ShoreBank’s mortgages with the higher ones of less responsible subprime lenders, such as Countrywide. The difference, he argued, was that ShoreBank did it the “old-fashioned way”—getting to know the borrower and securing a significant down payment against a realistically-valued property. …

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