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Shorebank: A Self-Sustaining Institution
Finding success and prosperity as banker put Ronald Grzywinski in a position to help others in his community, but his motivation came from within, after he had seen enough of how poorly banks treated minority citizens. Raised in a predominantly white, blue- collar neighborhood of Chicago where racial tolerance wasn't the order of the day, Grzywinski says, he had his earliest exposure to discrimination and what it was like to be black in America.
Primary Sources
Shorebank -written by Chris Johnston
Though he wasn't involved in the Civil Rights movement, Grzywinski became even more sensitive to racism after joining Hyde Park Bank in the late '60s, since it was located in an integrated neighborhood. He began to do a lot of reading on the subject, including Ralph Ellison's seminal novel about racism, The Invisible Man.
By 1968, while serving as president of the Hyde Park Bank, he and a partner put together a group to purchase the bank. Within a few months, two experiences convinced the young bank head it was time to improve a situation he abhorred. First, he met with Adlai Stevenson, who was then state treasurer of Illinois. After several meetings, Stevenson decided to give the bank a $1 million deposit for one year at the market rate of interest, if it would create a minority business loan program. Hyde Park succeeded in doing so, and the demand was significantly greater than any of them had anticipated.
Secondly, while making a routine call on a customer who owned a furniture store in the inner city on the South Side of Chicago, Grzywinski witnessed "the absolutely outrageous interest rates" he charged for consumer loans.
"That was the moment that showed me I really ought to do something about this," he recalls.
Grzywinski's first step to address the imbalance he saw was to form a separate, self-sustaining division within the bank that would raise deposits nationally and use the earnings to support a growth agenda. In the process of doing that, he was able to hire the three others who would later help him found Shorebank.
Thus, during the late '60s and early '70s, in the midst of one of America's most turbulent eras of social and political unrest, a group of four Chicago bankers stepped forward to put their new bank's money where their mouth was and create the first community development bank.
The civilly concerned cadre - Grzywinski, Mary Houghton, Milton Davis and Jim Fletcher - met at a local bar on Friday evenings to discuss the tumult swirling around them in the Windy City that included the slaying of Black Panther leader Fred Hampton and the "Chicago Seven" riots at the Democratic National Convention. They also engaged in lively discussions about the attempt of the failing South Shore National Bank to relocate to downtown Chicago from a "deteriorating and racially changing community" of a deeply impoverished South Shore neighborhood where more than 60 percent of the city's African-American population resided. Recognizing that problems are opportunities, the four saw a chance to implement their dream of a community development bank when the bank went up for sale after the Office of the Comptroller of Currency denied the request, considered by many to be the first such decision of its kind.
The group raised $800,000 in equity capital and borrowed a quarter of a million dollars to purchase the bank in August of 1973. Combining their diverse backgrounds in banking, social services and community activism, they launched Shorebank Corporation. The new venture embodied their idea that a for-profit commercial bank focused solely on the needs of local community residents could use traditional lending practices to stabilize and restore changing neighborhoods in the inner city.
"Our inspiration arose from the melding of our experiences as bankers at Hyde Park Bank in our day jobs and in our night jobs trying to work for and support community-based organizations as volunteers," Grzywinski says. "So, the idea was to wed those two things into a self-sustaining, more comprehensive approach to community development."
Starting out was far from easy. To ensure the bank survived, the fearsome foursome had to perform a number of challenging tasks simultaneously, starting with shoring up Shorebank's customer base. Sensing the thrift's demise, many depositors had fled to the safer shores of established institutions. Thus, as the bank's senior management, each of the four had to tirelessly recruit potential depositors by attending PTA and church hall meetings and visiting individuals in their living rooms and basements. Knowing they had to create an impression of permanence, they took little but powerful measures such as building the bank's first parking lot and landscaping it with big trees and shrubs. They built a quality drive-through facility. They also borrowed a sizable sculpture for the front of the bank - until they could afford to buy it - again to show they were committed to staying.
"We wanted to make a statement about being here, being permanent," Grzywinski recalls. It took about three years, he adds, before people stopped asking when Shorebank was closing.
They recruited employees who believed in their mission and vision to foster community development, and they trained them to treat everyone equally as customers, which had not been the bank's practice prior to their acquisition. They also made certain that they always paid back their loans on time, even when interest rates surged to more than 20 percent. Moreover, they continued to leverage their power as a bank to encourage participation of developers, construction companies and others to participate in community development efforts. As one of its most exemplary efforts, Shorebank invested in the largest low-income housing rehabilitation project ever, refurbishing more than 40,000 units throughout Chicago.
Gradually, they began to expand outside of their neighborhood. Shorebank opened operations in Cleveland, Detroit and Pacific Northwest. The latter serve as the first environmentally oriented banks in the world. Though they did not own it, Shorebank created and ran a rural-based community bank at the request of Arkansas' Governor Bill Clinton. When he later became President of the United States, Clinton created the community development financial institutions legislation, frequently citing Shorebank as the model.
Three decades later, Shorebank still stands as a premier model for community economic development organizations worldwide. Throughout, the institution's fundamental commitment has not changed. The key focus remains building healthy communities and increasing economic opportunities for low- and moderate-income residents through the integration of financial and community development services that are based within that particular community so that everyone literally shares the wealth.
Now, with assets totaling more than $1.3 billion, Shorebank has perfected the practice of balancing profitability with development outputs that directly contribute to the quality of life for community residents, small businesses and their employees. To date, Shorebank has invested nearly $2 billion in its priority communities, and in 2001 alone made more than $233 million in new community investments.
Shorebank's community development investment activities include the following:
Real estate lending and commercial lending in low-income neighborhoods
Loans to churches, religious organizations, and non-profit organizations
Support for minority and women entrepreneurs and business owners
Innovative deposit products and services that better serve low-income individuals and families
Employment training and placement for neighborhood residents
Financial training opportunities for low-income individuals and families
"Essentially, we practice old-fashioned banking," Grzywinski explains. "We stay focused on the community and the consumers and what they need, and we try to figure out ways to make a deal work."
While he says he can only speculate on whether or not Shorebank has inspired other banks to pursue similar enlightened approaches to community development, Grzywinski points to the change he saw within a few years of founding the bank. Initially, the federal examiners who would perform their routine reviews of the bank were skeptical and critical of what Shorebank's founders were attempting to accomplish. But within a year or two, their attitude changed.
"They started telling us that they were being asked by other bankers how we did it, so could we tell them how to do it," Grzywinski recalls. "It became a much more positive thing." He adds that the most recent industry figures he saw indicated that formal agreements totaling approximately $1.5 trillion have been made available for community development.
Today, Shorebank's 30-year track record of successfully pursuing the double bottom line of financial return and development output continues to provide a widely acclaimed international model for market-based community reinvestment. Shorebank has already raised nearly $30 million for a new company that makes equity investments in local development banks in Third World nations throughout Asia, Africa and Eastern Europe.
As he prepared to board an airplane for a business trip to Afghanistan, Grzywinski concluded: "We've demonstrated that the idea of a self-sustaining institution to do this kind of work that is not dependent on charity or government contracts has not only survived, but it is spreading around the world."
Further Reading
Shorebank
Acknowledgements
Writer: Chris Johnston
© 2004 World Benefit Productions, All Rights Reserved
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