ShoreBank’s Legacy and Vision Continue: A Practitioner’s Reflections By Bruce Gottschall, Former Executive Director of Neighborhood Housing Services of

ShoreBank, headquartered in Chicago, with the problem of declining areas. resources, ShoreBank changed per- was the largest community development Buying a failing bank in a declining ceptions about what was possible. If bank in the United States. In August neighborhood took foresight, cour- a small community bank in a declin- 2010, it was declared insolvent, and age, and dedication, and it also meant ing area of Chicago could demon- Urban Partnership Bank acquired Shore- taking significant risk. Indeed, many strate the viability of the neighbor- Bank’s core deposits and most of the as- people thought the task of reviving hood and the bank, there was no sets of ShoreBank Corporation’s Midwest both the bank and the neighborhood reason others couldn’t do the same. bank out of receivership from the FDIC. was impossible. ShoreBank introduced the concept ShoreBank was created at a time of The protests had focused attention of a community-based bank — local urban turmoil and neighborhood on the problem, but the enactment of knowledge and local presence — to decline. In the late 1960s and early HMDA and the CRA was essential a tough urban neighborhood from 1970s, people across the country were for encouraging banks to provide the which banks had fled. Yet it went protesting and demonstrating against credit necessary to make a differ- much further by setting up for-profit the “” of minority, low- ence in neighborhoods. income, and older communities. At However, communities bank offices and at bank executives’ also needed examples of ShoreBank offered concrete evidence homes, protestors showed their dis- how this type of lending approval of banks’ lack of lending in and community devel- that private investment in declining certain neighborhoods. Furthermore, opment could actually areas could make a difference. it was then an accepted belief that be done. ShoreBank, once city neighborhoods started to through its focus on decline, the downward spiral would making credit available in a place and not-for-profit subsidiaries that inevitably continue. Decline became other institutions had written off, helped potential borrowers navigate a self-fulfilling prophecy because provided such an example. the loan process and created further many people, including bankers, investment in the community. In acted on that belief. An accompany- ShoreBank’s vision, which empha- brief, ShoreBank went beyond the ing conviction was that the only way sized leadership and the responsibil- legislative mandate of the CRA to to reverse this decline was to demol- ity of private-sector entities in regen- create financial services and credit ish the neighborhoods and start over. erating neighborhoods, changed the and lending opportunities. It of- game. In particular, the bank helped fered concrete evidence that private In the midst of this turmoil, in 1973 — to shift responsibility for reversing investment in declining areas could before passage of the Home Mortgage the decline of troubled neighbor- make a difference and showed ways Disclosure Act (HMDA, 1975) and the hoods solely from the government to to do it successfully. Community Reinvestment Act (CRA, other institutions, especially banks, 1977) — a small group of people because ShoreBank realized that the ShoreBank also created a base from bought a troubled bank in a declin- availability of credit was an essential which to leverage public and other ing African-American neighborhood ingredient for improving neighbor- investment resources to further its on Chicago’s South Side. These hoods. This concept also made a local development goals. In his book people had a dream of improving huge difference in creating new Community Capitalism, Richard Taub the neighborhood by using a small models for community investment. notes that one of ShoreBank’s major private community bank as a base. By showing that neighborhoods that strengths was its ability to mobilize That might not seem like a novel idea had been excluded from obtaining outside resources and focus them on today, but at the time, it went against credit could improve with the right the community.1 the accepted wisdom of how to deal combination of private and public ...continued on page 14

1 Richard Taub, Community Capitalism. Boston: Harvard Business School Press, 1988. 7 ShoreBank’s Legacy and Vision Continue:

A Practitioner’s Reflections ... continued from page 7

Throughout the 1980s and early the community development arena. leadership role in providing access to 1990s — a time when the community President Clinton recognized it in his credit for low- and moderate-income development lending infrastructure remarks at the signing ceremony for residents and for people of color. was being built — the financial press the CDFI legislation: “[ShoreBank is] Mark Willis, who in 1989 moved ran numerous articles describing a place that I visited, got to know, and from the public sector to head up how ShoreBank was able to make got to understand. I’ve long admired Chase Bank’s community develop- loans that led to real improvements the way they steered private invest- ment efforts in New York, said that in the community without losing ments into previously underprivi- upon taking up the post at Chase, money. This was an important time leged neighborhoods, to previously one of his first trips was to Chicago in the development of neighborhood- undercapitalized and underutilized to meet with ShoreBank staff in or- lending expertise because the CRA Americans, proving that a bank can der to gain insights that would help was being enforced more rigorously, be a remarkable source of hope.…” him in his work for Chase. and examples of how to make the act work were vital to furthering com- Certainly, ShoreBank’s efforts Obviously, ShoreBank’s leader- munity development and building inspired those of us who developed ship and innovations in commu- a lending infrastructure to support the Neighborhood Housing Services nity development lending — both it. ShoreBank’s success countered (NHS) of Chicago partnership in nationally and internationally — are the claim that there were no lending 1974–75. ShoreBank’s example of far-reaching. This article does not opportunities in these neighborhoods leading neighborhood revitaliza- touch on ShoreBank’s many other and dispelled the myth that there tion from a community-based bank leadership roles and innovative was no good banking business to be was important in the development efforts that encouraged others. One done there. Through its pragmatic of NHS Chicago. Those of us en- area worthy of special mention is example, ShoreBank engendered gaged in this process believed that, ShoreBank’s groundbreaking work institutional changes within banks following ShoreBank’s example, it in lending to owners of small multi- that led to increased lending to these would be possible to create a part- unit residences to fix up and manage neighborhoods. nership among banks, neighborhood these critical but difficult investment residents, and the government to properties. Over the years, Shore- Of course, ShoreBank’s influence address community lending and Bank made loans on 55,000 units of reached far beyond Chicago and investment issues. This helped to rental housing and created hundreds led to one of its most noteworthy develop a sound partnership base of minority entrepreneur–investors. achievements. In 1986, working with led by private resources to serve a In addition, ShoreBank’s legacy Bill and Hillary Clinton in , range of low- and moderate-income includes, among other things, hun- ShoreBank staff developed the South- neighborhoods and residents. dreds of community development ern Bank Corp., an institution mod- banks and credit unions, Neighbor- eled after its own work in Chicago. Many other bankers have described Works organizations, not-for-profit This important institution demon- their visits to ShoreBank and their loan funds, and hundreds of CDFIs strated the value of the ShoreBank conversations with its leaders as crit- that are building on the groundwork model. In addition, the relationships ical to their own work. For example, laid by ShoreBank. The bank’s lead- that developed out of this effort led Thomas Fitzgibbon, a banker who ership in many other areas is also to one of ShoreBank’s single greatest would become a leader in commu- unquestioned, for example, socially contributions to community de- nity development banking, came to responsible investing and environ- velopment: its leadership in creat- Chicago in the late 1970s to observe mentally conscious lending, the ing the legislation that established ShoreBank’s activities and use them idea of a double and triple bottom community development financial as a guide for his work in St. Paul/ line, micro-finance, innovative retail institutions (CDFIs) and the Bank Minneapolis (and later in Washing- savings products, and innovation on Enterprise Award (BEA) in 1994. ton, D.C. and Chicago). He described extending services to the unbanked. This achievement has been acknowl- ShoreBank as proof that banking And ShoreBank’s influence is still edged by many people who work in institutions can and should play a being felt today. ShoreBank, like all 14 Management Team Key to Charter

Schools’ Success ... continued from page 5 pioneers, opened new territories as it greater number of students eligible Financing facilities for charter paved new paths to community im- for free or reduced-price lunch than schools is a critical piece to mak- provement and investment for others traditional public schools.10 ing quality educational alternatives to follow. Current practitioners in accessible to all. It is also a key community development investment Few states offer capital dollars to community development strategy, are truly following in the footsteps charter schools for facilities, and as these schools bring educational of those who came before as they typically charter schools cannot opportunities to many low-income continue to expand the territory, access capital funding streams used families, serve as community assets, widen the paths, and build knowl- by district schools. Therefore, they and bring new institutional actors edge and program infrastructure. must pay for rent and debt service into public education. TRF is com- Today’s practitioners are also work- from operating cash flow. Locating mitted to being a reliable source of ing to recognize the current barriers an affordable and suitable facility is capital to charter schools. and myths that impede community one of the most persistent challenges investment and to develop strategies cited by charter schools. School For information, contact Sara Vernon to overcome them. In short, com- districts are frequently unwilling to Sterman at 215-574-5800 or sara. munity development practitioners share facilities, and even when they [email protected]; www. are heeding the lessons learned from do, significant renovations are re- trfund.com. ShoreBank’s almost four decades quired to meet the demands of a 21st of success and inspiration while century educational experience. moving forward with their efforts to build successful communities. 10 National Alliance for Public Charter Schools, “Public Charter School Dashboard 2009,” June 2009, available at http://www.publiccharters.org/files/publications/DataDashboard.pdf. Perhaps an article on ShoreBank that appeared in The Economist sums it up best: “Mainstream banks are now in TRF Lending Case Study partnership with these community- based institutions so as to tap their The Reinvestment Fund (TRF) has provided short- or long-term financing to expertise at lending to businesses in more than half of the charter schools in the School District of Philadelphia (SDP). difficult environments. ShoreBank Among them, TRF worked with Mastery Charter Schools, a network of middle may have failed, but the movement and high schools that has managed the turnaround of three troubled district it once led is stronger than ever.”2 schools into high-performing Mastery Charter Schools. With participation from Wachovia Bank (now part of Wells Fargo), TRF financed the conversion of all Bruce Gottschall was executive director three of these facilities. In 2006, the SDP invited Mastery to convert Shoemaker of Neighborhood Housing Services of Middle School in Philadelphia into a charter school. Poor maintenance and Chicago from 1975 to 2009. He devel- extraordinary wear-and-tear had contributed significantly to the school build- oped the NHS program in 1974 as a ing’s dire condition. An $11 million construction loan from TRF helped Mastery charter member of the NeighborWorks upgrade the HVAC and electric system as well as reconfigure hallways to reflect Network. Mastery’s hub system, which limits spaces where students are out of public view. Shoemaker — once among the most violent schools in the district — is now a model school with its students showing dramatic improvements in discipline and 2 “ShoreBank: Small Enough to Fail: The academic performance. In state testing conducted in 2006, prior to the conver- Sorry End to a Bold Banking Experiment,” sion, only 30.6 percent of Shoemaker’s eighth graders scored proficient or above The Economist, August 26, 2010. in math, and only 42.8 percent scored proficient or above in reading. In 2008, proficiency rates increased to 76 percent in math and 79 percent in reading. Over 80 percent of its students qualify for free or reduced-price lunch. –Sara Vernon Sterman

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