As part of the Administration’s
ongoing commitment to improving
access to credit for small
businesses, Treasury announced
on February 3rd final terms
for the Community Development
Capital Initiative. This new
TARP program will invest lower-cost
capital in Community Development
Financial Institutions (CDFIs)
that lend to small businesses
in the country's hardest-hit
communities.
CDFI banks, thrifts and credit
unions - which have been certified
by Treasury as targeting more
than 60 percent of their small
business lending and other
economic development activities
to underserved communities
- will be eligible to receive
capital investments under this
program.
- Capital is
Available to CDFI Banks
and Thrifts at a 2 Percent
Rate: CDFI
banks and thrifts are
eligible to receive investments
of capital with an initial
dividend rate of 2 percent,
compared to the 5 percent
rate offered under the
Capital Purchase Program
(CPP). CDFIs may apply
to receive capital up
to 5 percent of risk-weighted
assets. To encourage
repayment while recognizing
the unique circumstances
facing CDFIs, the dividend
rate will increase to
9 percent after eight
years, compared to five
years under CPP.
- CDFI Credit
Unions Are Eligible to
Participate: CDFI
credit unions may apply
for subordinated debt
at rates equivalent to
those offered to CDFI
banks and thrifts and
with similar terms. These
institutions may apply
for up to 3.5 percent
of total assets - an
amount approximately
equivalent to the 5 percent
of risk-weighted assets
available to banks and
thrifts.
- Matching Capital
Allows More CDFIs to
Become Eligible for the
Program: In
cases where an institution
might not otherwise be
approved by its regulator,
it will be eligible to
participate so long as
it can raise sufficient
private capital that
- when matched with Treasury
capital up to 5 percent
of risk-weighted assets
(RWA) - it can reach
viability. The private
capital must be junior
to Treasury's investment
and the CDFI must be
in compliance with any
other regulatory mandates.
- Example: A
CDFI is currently deemed
to require additional capital
equal to 4 percent of risk-weighted
assets to reach the standard
set by its regulator. If
the CDFI can raise 2 percent
risk-weighted assets from
private investors, Treasury
would match that with 2
percent risk-weighted assets
to meet the viability standard.
- CDFIs Already
in CPP May Transfer That
Capital Into the New
Program: CDFIs
that participated in
CPP and are in good standing
will be eligible to exchange
those investments into
this program. Applications
for the exchange may
be submitted to the following
email address: CDCI@do.treas.gov.
- CDFIs Are Not
Required to Issue Warrants: Consistent
with the de minimis exception
under the Emergency Economic
Stabilization Act of
2008, CDFIs will not
be required to issue
warrants.
What
is a Community
Development Financial
Institution (CDFI)? |
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A certified
CDFI is a financial
institution that
works in markets
that are underserved
by traditional
financial institutions.
CDFIs are certified
by the Department
of the Treasury's
CDFI Fund, which
was created for
the purpose of
promoting economic
revitalization
and community development
in low-income communities.
CDFIs offer a wide
range of traditional
and innovative
financial products
and services designed
to help their customers
access the financial
system, build wealth
and improve their
lives and the communities
in which they live.
To be certified
as a CDFI, an organization
must demonstrate
that it meets each
of the following
requirements:
- Be a legal
entity at the
time of certification
application;
- Have a primary
mission of promoting
community development;
- Be a financing
entity;
- Primarily serve
one or more target
markets;
- Provide development
services in conjunction
with its financing
activities;
- Maintain accountability
to its defined
target market;
and
- Be a non-government
entity and not
be under control
of any government
entity (Tribal
governments excluded).
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