FDIC Federal Deposit Insurance Corporation 3501 Fit Drive, Angin, VA 22226 Office of Inspector General September 7, 2010 Honorable Spencer Bachus Ranking Member Committee on Financial Services U.S. House of Representatives Washington, DC 20515 Dear Mr. Bachus: As discussed in my August 13, 2010 letter, at your request, my office initiated an independent evaluation to review the FDIC's efforts to address capital deficiencies at ShoreBank, Chicago, Ilinois, Your letter of August 5, 2010, jointly signed by the Ranking Member of the Subcommittee on Oversight and Investigations, requested that my office determine whether the Administration or Members of the Congress exerted political influence over efforts to recapitalize ShoreBank. Your letter also requested that my office answer questions related to ShoreBank’s application for funding under the Troubled Asset Relief Program’s Community Development Capital Initiative (CDCI). In my August 13, 2010 letter, I also noted that if circumstances surrounding ShoreBank changed, I would contact you regarding our evaluation scope and approach. On August 20, 2010, the Illinois Department of Financial and Professional Regulation closed ShoreBank and appointed the FDIC as receiver. The FDIC entered into a purchase and assumption agreement with Urban Partnership Bank, Chicago, Illinois, a newly-chartered institution, to assume all the deposits of ShoreBank. On August 27, 2010, the FDIC notified my office that ShoreBank’s total assets at closing were $2.16 billion, with a material loss to the Deposit Insurance Fund (DIF) estimated at $329 million. Section 38(k) of the Federal Deposit Insurance Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires that my office conduct a material loss review (MLR) if the DIF incurs a loss of $200 million or more because of a bank failure. Asa result of these events, I have terminated the original evaluation and incorporated its objectives and the work performed to date into the required MLR of ShoreBank. In addition, I have modified one of these original objectives and added another objective to cover the efforts associated with the resolution of ShoreBank. As such, the overall objectives of this review are to: ‘Determine the causes of ShoreBank’s failure and resulting material loss to the DIF. ‘© Evaluate the FDIC’s supervision of ShoreBank, including implementation of the Prompt Corrective Action provisions of section 38 © Determine the timeline of events pertaining to the FDIC’s supervision and CDCI consideration for ShoreBank.‘© Determine the extent and nature of FDIC involvement in the ShoreBank investor recapitalization effort. * Determine whether the FDIC followed its standard process in reviewing ShoreBank’s CDCI application and whether ShoreBank met CDCI eligibility requirements. * Determine whether there was any indication of political or inappropriate influence imposed on the FDIC in connection with the supervision, investor recapitalization effort, CDCI consideration, or resolution of ShoreBank. * Determine whether the resolution followed selected FDIC policies and regulations related to marketing the bank, assessing purchaser eligibility, and making a least cost decision. Consistent with the existing statutes, the MLR portion of this review will be completed on or before February 27, 2011, which is 6 months after the date we received the official loss estimate from the FDIC. While we intend to include the results of all of our work in one report, the extent and complexity of the issues you raised may require separate reporting in order to meet the MLR statutory deadline. Should that be the case, we will advise you in advance. ‘We will conduct this review in accordance with Government Auditing Standards and will incorporate management views in the final report(s). As previously discussed, our report(s) will be transmitted to the Chairman of your Committee, to you as the Ranking Member of the Committee, and to the Chairman and Ranking Member of the Subcommittee on Oversight and Investigations. ‘The report(s) resulting from this review will subsequently be made publicly available. If you or your staff have questions, please feel free to contact Fred Gibson, Deputy Inspector General, at 703-562-6339, or Leslee Bollea, Senior Congressional Relations Manager, at 703-562-6311. Sincerely yours, rd Kigms— Jon T. Rymer Inspector General ce: Honorable Bamey Frank, Chairman