The bailout of Chicago-based ShoreBank has hit a serious snag as the Federal Reserve and Treasury drag their feet on whether to provide funding to the ailing South Side lender, sources close to the situation say. 

Last month ShoreBank lined up commitments from private sources, including Goldman Sachs, Bank of America, General Electric and Chase, for a capital infusion of about $135 million. That private money was to have made ShoreBank eligible for about $75 million in government funds from the Treasury’s Troubled Asset Relief Program. The bank has needed to raise about $200 million to stave off possible seizure.

 The use of federal dollars to bail out ShoreBank, which prides itself on helping hard-hit areas, has provoked a backlash in the last month from conservatives and others concerned about the use of tax dollars for bailouts.

An attendee at a recent protest in Chicago over the ShoreBank bailout made the point that Park National Bank, which was also active in the community, was allowed to fail. Some have also called for congressional inquiries into the ShoreBank bailout. 

“It is not going as quickly as we would like, but we are working through it,” said Brian Berg, ShoreBank spokesman. 

The Treasury is deferring to the Federal Reserve. One source said some at the Fed want ShoreBank to raise more private dollars before  it gets government money. 

The source said the private investors are unlikely to kick in any more money. Many of the big banks received federal bailout money and have since repaid it. On June 15 they extended their escrow period by a week.

One source said Treasury could override the Fed but has chosen not to do so.

 Bill Brandt, chairman of the Illinois Finance Authority, a government financing body that has looked at ways to help ShoreBank, is disappointed by the developments. He says ShoreBank plays a unique role in helping downtrodden communities, particularly those in black neighborhoods.

 ”Given all the time and effort that went into this, the board of the Illinois Finance Authority, the local civic leaders on the South Side of Chicago and others I’d imagine, would be outraged over this development,” Brandt said.

 ”This is truly an example of the government moving the goal posts when they don’t want to lead,” he said. 

He said he’s particularly disappointed by Treasury Secretary Timothy Geithner. 

“It’s now clearer than ever to me that while he’s happy to have these people clean his apartment and those of his cronies on Wall Street, he’s not comfortable with them getting mortgages for their homes,” Brandt said. 

“Mark my words:  After this Herculean effort by so many people, should Treasury allow this bank to fail because of the utter lack of leadership coming from Washington, there will be a firestorm in Chicago,” he said.

 ”If ShoreBank has the time and desire, the IFA’s door is still open and will always try to consider any reasonable request” from ShoreBank, Brandt said.

U.S. Rep. Jan Schakowsky (D-Ill.), who has fought to help save ShoreBank, said if ShoreBank goes under, underserved communities will suffer. 

“This bank has done everything and more that there were told to do by regulators,” she said. They’ve raised enough private capital to be eligible for public monies under TARP. They’ve brought in new management.

 Treasury and the Fed had no comment.

The White House, which is trying to push financial reform through Congress while dealing with the oil spill, is afraid to get involved because of the potential political ramifications, one source said.