Banking on Communities Initiative
What is the Banking on Communities initiative?
The Banking on Communities initiative is an effort by the Community Development Bankers Association (CDBA) to help its member banks raise funds that can be used to lend to quality projects in underserved communities and to provide hands-on support for those projects.
The CDBA is a national trade association of the community development banking industry and was established to help its members better meet the credit needs of their communities. Because of their size (small), age (young), and location (underserved communities), CDBA members often find their funding options limited and have fewer resources to devote to attracting deposits.
How can CDARS® further the goals of the Banking on Communities initiative?
CDARS® enables CDBA banks that are Promontory Network members to attract large deposits by offering access to multi-million-dollar FDIC insurance (limits apply) to each depositor. CDBA banks may then lend these funds to their communities.
What is the difference between CDBA and CDFI institutions?
Community Development Financial Institutions (CDFI) are financial institutions specially designated by the Department of Treasury to recognize that they primarily serve economically distressed communities or populations. Of the more than 600 CDFI institutions in the U.S., just over 60 are banks.
All CDBA banks are CDFIs*.
* Not all CDFIs are members of the Promontory Network
Are the regulators aware of CDARS?
Yes, CDARS and its application to community reinvestment through CDBA members were referenced in an OCC regional newsletter in January of 2005.
Furthermore, the regulators have verbally advised CDBA that a deposit by a banking institution through a CDFI using CDARS can be considered a “qualified investment” for purposes of the “investment test” used to determine Community Reinvestment Act (CRA) performance.
In which part of the CRA test would a deposit through CDARS into a CDFI apply?
The deposit of funds by a banking institution through a CDFI using the CDARS service is consistent with the definition of “qualified investment” under the CRA regulations. A “qualified investment” is broadly defined as “a lawful investment, deposit, membership share, or grant that has as its primary purpose community development.”1 “Community development,” in turn, is defined to include, among other things, “activities that revitalize or stabilize low- or moderate-income geographies.”2 Interpreting these definitions, the agencies have determined that investments or deposits in a CDFI are “qualified investments.”3
Under the CRA regulations, federal banking regulators assess the CRA performance of a bank using several tests and standards, one of which is the investment test. Applying the investment test, regulators evaluate “a bank’s record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s).”4 As referenced above, the regulators orally have advised CDBA that a deposit by a banking institution through a CDFI using CDARS can be considered a “qualified investment” for purposes of the “investment test” used to determine CRA performance.
1 12 CFR __.12(s).
2 12 CFR __.12(h)(4).
3 See 66 Fed. Reg. 36629 (July 12, 2001) (“Examples of qualified investments include, but are not limited to, investments, grants, deposits or shares in or to . . . [CDFIs]”); FFIEC letter dated June 26, 1995 (“Qualified investments include, but are not limited to, investments in CDFIs that primarily lend in low- and moderate-income areas or to low- and moderate-income individuals to promote community development . . ..”).
4 12 CFR __.23(a).