UPDATED 11/17/10 6:54 a.m.

CHICAGO (CBS) – Federal investigators say the issuance of too many real estate loans was the cause of the demise of Broadway Bank.

Illinois Treasurer Alexi Giannoulias’ family bank failed because it was heavy into real estate loans and couldn’t absorb the losses during the economic downtown, but management also pursued other strategies that made the institution vulnerable, according to a report Tuesday from the Federal Deposit Insurance Corporation’s inspector general’s office.

Regulators shut down Broadway Bank on April 23 after giving Giannoulias’ family about 90 days to raise $85 million.

Broadway Bank was a major issue in Giannoulias’ recent unsuccessful campaign for President Barack Obama’s former Senate seat. Giannoulias, a Democrat, was an executive at the bank before he was elected in 2006 to his state post, but he didn’t run for re-election as treasurer and will be out in January.

The agency said the bank had an “aggressive growth strategy” to pursue commercial real estate and construction loans but didn’t have good credit risk management practices to manage the loans and then couldn’t withstand the losses in a worsening economy.

The failure cost the FDIC’s Deposit Insurance Fund $390 million.

“Broadway’s loan concentrations magnified the impact of a severe downturn in the economy and real estate markets, ultimately resulting in a rapid and material deterioration in the bank’s loan portfolio,” the report said.

But times weren’t always bad for the bank, which Giannoulias’ late father founded 30 years earlier, before it failed in April.

“The lending strategy implemented by Broadway’s board and management was initially profitable, and the bank’s return on assets was significantly higher than its peers for the years 2004 to 2007,” the report said.

Other factors also contributed to the bank failure, including out-of-territory lending in Florida and New York, investments in certain securities and other funding sources, such as brokered deposits, which increased the risk to the bank, the report said.

The federal takeover also followed revelations that the bank loaned $20 million to two convicted felons, who were implicated in a check-kiting scheme in connection with the Boston Blackies restaurant chain.

Giannoulias was not immediately available for comment Tuesday.

Throughout his failed Senate bid, Giannoulias was never able to escape questions about the bank. Republican Sen.-elect Mark Kirk repeatedly used Broadway’s failure to question Giannoulias’ qualifications.

(TM and © Copyright 2010 CBS Radio Inc. and its relevant subsidiaries. CBS Radio and EYE Logo TM and Copyright 2010 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed. The Associated Press contributed to this report.)

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