In response to the 1992 Los Angeles riots, the federal government, city and county officials, commercial banks and community leaders established the nonprofit Los Angeles Community Development Bank (LACDB). This public-private partnership was a new development model, designed to spur economic growth in some of Los Angeles' most disadvantaged areas. The LACDB was capitalized with $435 million from the U.S. Department of Housing and Urban Development and ranks as the federal government's largest inner-city lending initiative. By January 2001, however, the bank had experienced unacceptably high losses and was seeking permission to continue operations, after reducing its staff by half and closing most of its offices. This article examines why this innovative public-private economic development partnership confronted such difficulties. Public-private partnerships continue to be an important vehicle for urban economic development. This case study provides a warning of potential pitfalls that can occur from such arrangements.