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CHICAGO (Reuters) - U.S. regulators on Friday seized notable Chicago-based community development bank ShoreBank after Wall Street backers failed to rescue the institution, and its deposits will be taken over by a newly chartered bank.
ShoreBank, a privately owned bank known for its philanthropic activities, had received multi-million dollar investment commitments in recent months from Goldman Sachs, Citigroup, JPMorgan and Bank of America, as well as from General Electric.
But the bank, which was put on the ropes when the recession hit its lower-income borrowers especially hard, was unable to secure the funds it was seeking from the government's Troubled Asset Relief Program, or TARP, it needed to match private-sector pledges.
ShoreBank's deposits will be taken over by a newly chartered institution called Urban Partnership Bank (UPB). Its 15 branches also will shift to the new bank.
William Farrow, a former banker with First Chicago Corp, will be president and chief executive of UPB and David Vitale, former executive chairman of ShoreBank, will be chairman.
The Federal Deposit Insurance Corp said ShoreBank had $2.16 billion in assets and $1.54 billion in deposits as of June 30.
The FDIC estimated that the cost to the Deposit Insurance Fund of the failure will be $367.7 million. "Compared to other alternatives, Urban Partnership Bank's acquisition was the least costly resolution," the FDIC said in a statement.
Urban Partnership Bank will pay the FDIC a premium of 0.50 percent to assume all of the deposits of ShoreBank and in addition will purchase "essentially all of the assets except for the marketable securities and fixed assets," the agency said.
The FDIC and Urban Partnership Bank also entered into a loss-share transaction covering $1.41 billion of ShoreBank's assets.
UPB will have a Tier 1 capital ratio of at least 8 percent and sufficient capital to meet pre-opening expenses, projected growth and overall capital needs, UPB said in a statement.
The new bank was "capitalized by financial institutions, philanthropic organizations and socially responsible individuals from Chicago and nationally," it said.
ShoreBank is one of the larger banks to fail in recent months and the 114th FDIC-insured institution shut down so far this year.
Seven other U.S. banks closed on Friday in Virginia, California and Florida as the community bank sector continues to struggle with poorly performing loans and recovers at a pace that lags behind that of Wall Street and the larger economy.
Los Padres Bank, Solvang, California, Independent National Bank, Ocala, Florida and Imperial Savings and Loan Association, Martinsville, Virginia, were among the banks that were closed, the Federal Deposit Insurance Corp said.
Small banks are collapsing at a faster pace this year compared to last, but regulators expect the closures to peak this quarter.
Attempts to rescue ShoreBank have played out in the media for months, with lawmakers and watchdogs questioning whether special treatment was being given to the bank.
ShoreBank is located on Chicago's South Side near the home base of President Barack Obama and some of his top aides, and the bank has promoted on its website connections to Obama.
ShoreBank has received national recognition over the years for its efforts to extend loans to low-income communities and environmental cause.
It has some prominent supporters with strong ties to Washington, including Ellen Seidman, former director of the U.S. Office of Thrift Supervision, and Eugene Ludwig, former U.S. Comptroller of the Currency.
U.S. Rep. Jan Schakowsky, who represents Chicago's North Side, lobbied Wall Street banks this year to save the 37-year-old bank. She has blamed Wall Street's "recklessness" for the foreclosure crisis that precipitated ShoreBank's losses.
But bank activity with a philanthropic bent has not been profitable lately. For the quarter ending March 31, ShoreBank reported a $17.1 million operating loss, compared with an operating profit of $384,000 in the year-earlier period.
UPB "will focus on providing continued availability of financial services for low and moderate income communities" in Chicago, Cleveland and Detroit, the bank said.
"The private investment in this new financial institution demonstrates commitment to restoring the economic vitality of our communities," Vitale said in a statement.