Failed Gateway Bank was small but significant
Gateway Bank of St. Louis, which was closed by regulators on Friday, was tiny in banking terms, with only $27 million of assets. Its historical significance, however, was much larger. Gateway was founded in 1965 as an black-owned bank, at a time when civil rights leaders complained that white-owned banks weren’t meeting the needs of African-American neighborhoods. A 1964 article in Jet magazine lists Gateway as one of 10 banks that had recently opened or were in the process of being chartered. It suggests two reasons for the surge in activity:
the more liberal policies of the present Comptroller of the Currency, (under the Treasury Dept., this section controls national banks in the U.S.) James Saxon and urgent credit needs of Negroes that are not being satisfied by existing institutions.
In St. Louis, protests at Jefferson Bank in 1963 had focused attention on discrimination in banking. Here’s how my colleague Jim Gallagher described Gateway’s origins in a 1997 story:
Gateway was a child of the civil rights movement of the 1960s.
The idea struck while protesters were picketing Jefferson Bank in 1963. As (bank president Sharnia) Buford tells the story, a woman pulled up in a Cadillac and rolled down the window.
“What’s this all about?” she asked.
The protesters told her that the bank wouldn’t hire blacks. “Well, if you don’t like what’s going on, why don’t you start your own bank?” she asked.
A group of black businessmen and professionals raised $500,000 to capitalize Gateway. The doors opened in June 1965.
Clifton Gates, a real estate broker and mortgage banker, was its first president.
The bank had high levels of problem loans by the early 1980s, and operated under regulatory cease-and-desist orders for much of its history. It also was hurt by infighting among board members. At one point in the 1990s, Boatmen’s National Bank and other major St. Louis companies financed a rescue of Gateway.
A new ownership group led by Chairman Bill Malek, a mortgage banker, bought control of Gateway in 2000 and talked about ambitious expansion plans, but in the end they weren’t able to turn the bank around. In fact, its assets shrank from $34 million when they bought it to $27 million when it closed.
As an indication of how deep Gateway’s problems were, its failure cost the FDIC $9 million, or $1 of loss for every $3 in assets.
(3 votes, average: 2.33 out of 5)
Loading ...
David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
David, isn’t this another example of foregoing viable business models in an attempt to solve a social ill without investigating the root cause? I doubt that anyone would disagree with the goal of serving an underserved community. It’s essential to create the tide that raises all boats. Too often, however, there is a tendency to overlook the community’s readiness for that service. Has the community an adequate support structure to foster business development and personal savings? Is the education the people in the community have received adequate to allow them to be successful? If not, what systems are going to be put into place, what collaborations between academia, business leaders and government to assure the success of both the business and social goals? It’s often this lack of balance in the approach that produces results like Gateway. A terrible waste of good intentions and valuable resources.
Dale, your thoughts and comments are spot on, however there is also the issue of entitlement. This Bank has been troubled for years, and any other would have been liquidated two to three years ago.
This issue , of course covers all that you have outlined, however includes the stupidity and greed that all or most banks over the past 10 years joined in. They forgot it was not their money but the money of their depositors, and that they simply had a fiduciary responsibility to keep the monies safe and sound. They did not because their over all model was flawed.
It didn’t cost the FDIC a dime. It cost the American Taxpayers $9 Million dollars.
Actually it cost the Banks that are doing their jobs correctly and safe and sound, but increased insurance costs and special funding to replenish the FDIC cofers.
Liberalism in a banking test tube, or, put another way, “the road to ruin is paved with good intentions”. Without the sheer will of Cliff Gates, this bank would have failed years ago. A fine businessman, I recall also a Miller beer distibutorship along with his real estate, he was caught between those good intentions and good business. I am glad that he didn’t have to see the bank close.
The results of social engineering. Benefits for one groups, costs to all. Sad the black community couldn’t even support one small bank in this town. Sad Sad Sad.
Do not try to assign any social many overtones to this failure. Purely and simply it was the result of too many bad loans. Period. To blame a “community” is totally off base.
Banks take risks when they lend money. Some loans are not repaid. Pretty simple.
Liberal agenda? No —- simply risk taking. The basic tenant of capitalism - hardly a liberal agenda.
As to greed - I wish we had more so-called greed going on now. What you call greed means to me Banks taking risks lending to business so more people work and pay bills and live the dream.
Long live risk takers like Mr. Gates and Mr. Malek. The world needs more just like you.
Fred: The foundations of Gateway are mired in the liberal agenda….not capitalism/risk taking, although Cliff Gates understood both. I saw that he was torn between the two…….most others surrounding this experiment were out and out liberals with ‘hope and change’ on their minds and willing to spend the money of others to advance their agenda. In the end, pure capitalism prevailed………..as Mr. Gates would have predicted, but mourned.