In mid-November, Alexi Giannoulias held a Sunday-morning news conference at Flashpoint Academy, a digital-arts school in the Loop, to announce that he was being endorsed for the U.S. Senate by Congresswoman Jan Schakowsky. It wasn’t a surprising development—Schakowsky has been a mentor and a key ally to Giannoulias since his political debut in 2006, when he ran successfully for state treasurer—but the event was choreographed as if it were big news. Campaign workers greeted people in the lobby and directed them to the elevators a few steps away; others waited to catch them as they stepped off the elevators on the fifth floor. Dozens of chairs were set up in the room where the announcement was to be made, and a video camera was ready to capture it for YouTube.
Four years ago Giannoulias was a 29-year-old officer at the bank, and known in political circles—if at all—as the guy who’d helped Barack Obama raise lots of money in the Greek community. Then Obama paid Giannoulias back, endorsing him in TV spots that propelled him to a come-from-behind win in the 2006 Democratic primary for treasurer. Victory transformed him into a promising young progressive with big prospects—until the media began reporting that Broadway Bank had given a series of loans to figures involved in organized crime or political corruption. Even as Giannoulias triumphed in the 2006 general election, critics accused him of being inexperienced, slick, and “ethically challenged.”
Giannoulias thanked everyone for coming. As the cameramen packed up, he was loose and jovial, circulating around the room offering handshakes and hugs and making wisecracks. For once, nobody had asked about the bank.
He enrolled at the University of Chicago and became one of the basketball team’s scoring leaders. But as his mother got better, Giannoulias started thinking about how much he wanted to play in the Division I NCAA tournament, which he’d watched avidly every year since he was a little kid. (“The first championship I remember is when Keith Smart hit the jumper to win it for Indiana” in 1987, he says.) His older brother George was already in Boston, so Alexi got in touch with the coach at Boston University and decided to transfer there for his last two years. It worked out as he’d hoped: Giannoulias got a lot less playing time than he had at the U. of C., but during his junior year the Terriers went 25-4 and won the American East Conference tournament before losing in the first round of the NCAAs to Tulsa.
Broadway was one of hundreds of banks around the country that profited greatly from that boom and kept it going with aggressive lending policies. From 2002 through 2006 its assets more than doubled, from $434 million to $946 million, and Crain’s Chicago Business ranked it the most profitable bank in Illinois (by figuring its income as a percentage of its assets) for four years running.
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But there was at least one additional factor: risk tolerance. Broadway’s growth and profits were fueled largely by its rapidly expanding business in issuing loans for new real estate development. Traditionally lending for construction and development (known in the industry as C & D) has been seen as a bigger gamble than lending for, say, existing homes or small businesses, since a relatively high number of plans for new hotels, condos, housing developments, office complexes, and the like end up flopping. In the early to mid-2000s, though, as the soaring real estate markets drove the national economy, many lenders downplayed the risk and dived in.
In 2002, the ratio of brokered deposits to total assets at Broadway was 53 percent, according to FDIC records; four years later, it had risen to 68 percent. The average for all federally insured banks nationwide was 4.5 percent. According to an explanation of hot money on AOL’s Daily Finance in July, “the 79 U.S. bank failures in the last two years had four times the brokered deposits of the average bank, and 33 percent of the failed banks had high brokered deposits and extremely fast growth.”
