The minority banking scene in Chicago is rapidly declining and an area that was once home to 17 banks owned or focused on lending to minorities could soon be reduced to 7. All due to the recession which has had a devastating effect on these specialty financial organizations.
Before the economic downturn hit in 2008, Chicago was home to 17 banks which specifically focused on lending to minorities. Six have since failed and 5 are in such poor financial condition that their futures are in question. This leaves six minority focused banks, plus a newly created bank which is a replacement to another failed bank.
“I think it’s an incredible, tragic loss that the minority-owned banks have dwindled,” said Norman Williams, chairman and CEO of the black-owned Illinois Service Federal Saving and Loan Association of Chicago.
Some of the banks lost so far include: $2 billion-asset holding ShoreBank, one of the most active lenders on the South Side, catering mainly to African-Americans; $191 million-asset holding Second Federal Savings & Loan, a mortgage lender to Hispanics in the Little Village and Back of the Yards neighborhoods on the Southwest Side; and $1.6 billion-asset holding Mutual Bank of Harvey, an Indian-American-owned bank that lent aggressively to business owners in the Devon Avenue corridor on the North Side, according to Crain’s Chicago.
Many of these banks have historical significance because they were launched in the 1960’s and 1970’s, when non-white borrowers had trouble getting loans from downtown banks. The banks “may be symbolically important,” according to Paul O’Connor, founder of Chicago-based Angkor Strategic Advisors, an investment banking firm specializing in community banks.
“But when it comes to the African-American borrowing community, they don’t need them anymore.”
Minority bankers continue to express frustration that economic circumstances haven’t improved in their neighborhoods.
“There still are no jobs,” says Walter Grady, president and CEO of Seaway Bank & Trust Co., Chicago’s largest black-owned bank. “How are (consumers) going to make their mortgage payments and so forth? In the commercial area, things are starting to pick up, but not to the point where you feel you’re in the clear.”
Seaway’s size should help it in the future, since the current economy has made higher capital standards necessary for small banks to survive, says Craig McCrohon, partner at Burke Warren MacKay & Serritella P.C. in Chicago.
“I think operating any kind of small niche bank is more difficult than it was 10 years ago,” he says. “If there genuinely are underserved niche businesses, the challenge will be to create a large enough bank to find and exploit those opportunities.”