Our Position

Community Development Financial Institutions

Position

  • ICBA supports increasing funding for the CDFI Fund, proceeds of which are used to help CDFI banks continue to innovate and help their communities.

  • ICBA welcomes Treasury’s Emergency Capital Investment Program (ECIP), which provides nearly $9 billion in capital, but we urge the Federal Reserve to exclude ECIP capital from the debt-to-equity limits set by the Small Bank Holding Company Policy Statement.

  • ICBA endorses the statutory creation of “Impact Bank” designations for qualifying banks serving low-income borrowers.

  • ICBA supports the creation of a legal and regulatory framework that promotes CDFI status among community banks and provides more opportunities for community banks to benefit from this special designation, such an automated or streamlined application for community banks located in low-income areas.

  • Community Reinvestment Act exams of CDFIs should account for information that is already provided to the CDFI Fund through the application and annual certification process. Requiring a CDFI bank to provide similar information to two federal agencies is redundant and unnecessary.

  • Grant proceeds from the CDFI Fund should be tax-free for CDFI banks, just as they are for CDFIs in other industries.

  • ICBA opposes the CDFI Fund’s proposed revisions to the Certification Application and the Annual Certification, as the proposed changes would likely harm existing CDFI banks and significantly deter interest from new CDFI applicants.

Background

Community banks strive to improve the financial health of their customers and communities, particularly those community banks located in low and moderate-income (LMI) areas. Many community banks have attained the special designation of being a community development financial institution (CDFI) which recognizes their dedication to LMI communities.

ECIP was authorized by the Consolidated Appropriations Act of 2021, which empowered Treasury to invest up to $9 billion into MDIs and CDFIs by purchasing senior preferred stock or subordinated debt issued by the eligible institutions. The FDIC, OCC, and FRB published an Interim Final Rule in February 2021 that would limit S-corporations to issuing subordinated debt to Treasury, which would be counted against their debt-to-equity levels under the Small Bank Holding Company Policy Statement. If this treatment is maintained, approximately one-third of all banks that were awarded ECIP funds would have to accept less capital than they were awarded.

CDFIs are specialized financial institutions that provide financial products and services to populations and businesses located in underserved markets. These institutions have community development missions and a reputation for lending responsibly in low-income communities. Community banks comprise over 20 percent of the CDFIs in the nation.

Before designation as a CDFI, banks must apply to the CDFI Fund for certification. Among other requirements, a bank must demonstrate a primary mission of community development, serve one or more target markets, provide development services to borrowers in conjunction with financing activities, and maintain accountability to its target market.

In summer 2020, the CDFI Fund proposed revisions to its application and annual certification to ensure that entities provide financial products and services in a way that do not harm consumers. While ICBA supports this goal, the way the Fund proposes to assess these criteria could prove to be troublesome, such as asking a series of questions related to every financial product and setting rate caps on loans.

Staff Contact: Michael Emancipator

Staff Contact

Michael Emancipator

Vice President, Regulatory Counsel

Washington, DC

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