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Financial Services Law Insights and Observations

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  • Hsu highlights importance of MDIs, CDFIs

    On June 9, acting Comptroller of the Currency Michael J. Hsu spoke before the 2022 Community Development Bankers Association Peer Forum to discuss agency efforts to support underserved communities, as well as initiatives for revitalizing Minority Depository Institutions (MDIs) and increasing investments in Community Development Financial Institutions (CDFIs). Emphasizing the important role MDIs and CDFIs play in providing mortgage credit, small business lending, and other banking services to minority and low-to-moderate-income (LMI) communities, Hsu discussed ongoing challenges facing MDIs in terms of accessing capital and meeting customer needs. He noted that these challenges have caused many MDIs to close, fail, or be acquired by larger banks. Ensuring the survival of the remaining MDIs is important, Hsu said, since these are often the only financial institutions fulfilling minority communities’ financial needs. He further explained that the OCC is “doubling down” on Project REACh, which brings together leaders from the banking industry, national civil rights organizations, and various businesses and technology organizations to identify and reduce barriers to accessing capital and credit (covered by InfoBytes here), and stated that Project REACh has “challenged large and midsize banks to sign a pledge to revitalize MDIs with capital investments, technical assistance, business opportunities, executive training, and other resources.” Hsu also discussed recently proposed interagency rules to modernize enforcement of the Community Reinvestment Act (CRA), which will also benefit MDIs and CDFIs. As previously covered by InfoBytes, the Federal Reserve Board, FDIC, and OCC issued a joint notice of proposed rulemaking (NPRM) in May 2022 to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.

    Bank Regulatory Federal Issues OCC CDFI MDI Underserved CRA Agency Rule-Making & Guidance Federal Reserve FDIC

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  • OCC says bank partnerships crucial in community reinvestment and resilience

    On April 7, the OCC highlighted measures that banks can take to collaborate with community development financial institutions (CDFIs), minority depository institutions (MDIs), and other community-based groups to assist communities recovering from the Covid-19 pandemic and natural disasters. In the agency’s latest edition of its Community Developments Investments newsletter, “Partners in Recovery: Community Reinvestment and Resilience,” the OCC discussed ways banks have partnered with CDFIs and MDIs to originate small business loans, and highlighted federal emergency programs created to provide resources to low- and moderate-income and minority communities and businesses recovering from the disproportionate effects of the pandemic. The newsletter also provided examples of bank-community partnerships and addressed the role that these partnerships play in both rebuilding communities following disasters and the pandemic and preparing for future crises through climate resilience planning and investment.

    Bank Regulatory Federal Issues OCC Consumer Finance CDFI MDI Covid-19 Disaster Relief

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  • NYDFS proposes partnership with CDFIs

    State Issues

    On February 25, NYDFS announced a proposal to partner with Community Development Financial Institutions (CDFIs) to deliver $150 million to small businesses. According to the announcement, the partnership was announced after Governor Kathy Hochul held a roundtable related to “how New York State can spur economic recovery in Black and brown communities,” as well as “new efforts to fight structural racism embedded in the financial system and support innovative community lending programs and economic development services focused on reaching communities of color.” The announcement pointed out that the partnership is part of the governor’s FY2023 budget, which proposed an unprecedented assistance package for small businesses, including more than $500 million to the state. Governor Hochul also announced an advisory council of New York State-chartered CDFIs and minority depository institutions, which will be led by NYDFS Superintendent Adrienne Harris, and “will elevate the specific concerns of New York CDFIs and MDIs to support communities of color and ensure their needs are met.”

    State Issues New York NYDFS State Regulators Small Business Lending CDFI Diversity

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  • NYDFS awards funds to support underserved communities

    State Issues

    On October 7, NYDFS announced the first awards from the New York Community Development Financial Institution (CDFI) Fund to support access to safe and affordable banking services in historically underserved and redlined, low-income communities. According to the announcement, with a multi-year $25 million New York state-commitment, the CDFI Fund plans to allocate resources for the growth of CDFIs to assist in the delivery of affordable financial products and services and financial literacy programming to low- and moderate-income New York citizens. In addition, the CDFI Fund will expand “access to capital and technical assistance services for New York State small businesses and non-profit organizations.” In total, 31 CDFIs were selected to receive financial inclusion grants, which totaled nearly $5 million.

    State Issues NYDFS Redlining Consumer Finance CDFI Bank Regulatory

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  • FDIC launches investment vehicle to support MDIs and CDFIs

    Federal Issues

    On September 16, the FDIC announced the launch of a new capital investment vehicle to support insured Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs) that provide capital and financial services to low- and moderate-income, minority, and rural communities. The Mission-Driven Bank Fund supports the FDIC’s commitment to preserving and promoting mission-driven institutions, and provides investors with an opportunity to support these institutions, enabling MDIs and CDFIs to provide affordable financial products and services, stimulate economic and community development, and build opportunity and prosperity. Among other things, the fund’s collaborative investment framework will channel private capital and other resources to allow institutions to (i) raise the necessary capital to better serve their communities; (ii) weather economic downturns and recover faster; (iii) attract technical expertise to grow operations and expand services; (iv) “acquire, deploy, and maintain technology solutions”; and (v) “build capacity and scale.” The FDIC notes that it “will retain an advisory role to support the fund’s mission, but will not contribute capital to, manage, or be involved in investment decisions of, the fund.”

    Federal Issues FDIC Minority Depository Institution CDFI Bank Regulatory

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  • Agencies issue rulemaking to facilitate Emergency Capital Investment Program for CDFIs and MDIs

    Agency Rule-Making & Guidance

    On March 22, the OCC, Federal Reserve Board, and the FDIC published an interim final rule (IFR) to facilitate the implementation of the Emergency Capital Investment Program (ECIP). As previously covered by InfoBytes, the ECIP was established by the Consolidated Appropriations Act of 2021, and will provide up to $9 billion in capital directly to Community Development Financial Institutions and minority depository institutions to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities” that may be disproportionately impacted by the Covid-19 pandemic. The IFR outlines capital designations and investment eligibility criteria, and specifically notes that the agencies have revised “the capital rule to clarify that senior preferred stock will qualify as additional tier 1 capital and subordinated debt will qualify as tier 2 capital.” The ECIP will expire six months after the date on which the national Covid-19 emergency ends.

    Agency Rule-Making & Guidance Federal Reserve OCC FDIC CDFI Minority Depository Institution Covid-19 Bank Regulatory

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  • Treasury announces Emergency Capital Investment Program for CDFIs and MDIs

    Federal Issues

    On March 4, the U.S. Treasury Department announced a new initiative to provide access to capital for communities traditionally excluded from the financial system that have significantly struggled during the Covid-19 pandemic. The Emergency Capital Investment Program (ECIP), established by the Consolidated Appropriations Act of 2021, will provide up to $9 billion in capital directly to Community Development Financial Institutions (CDFIs) and minority depository institutions (MDIs) to provide, among other things, “loans, grants, and forbearance for small and minority businesses and consumers in low income communities.” The ECIP will set aside $2 billion for CDFIs and MDIs with less than $500 million in assets, as well as $2 billion for CDFIs and MDIs with less than $2 billion in assets. Treasury notes that the program is intended to incentivize impactful lending, and states it is currently “developing additional ‘deep impact’ metrics to further incentivize targeted investments by participants in those communities most in need of capital.” Institutions seeking to participate in the ECIP can access application instructions and materials along with an application portal here.

    To support the implementation of the ECIP, the FDIC, Federal Reserve Board, and the OCC issued an interim final rule to “revis[e] their capital rules to provide that Treasury’s investments under the program qualify as regulatory capital of insured depository institutions and holding companies.” The interim final rule is effective immediately upon publication in the Federal Register. Comments will be accepted for 60 days following publication.

    Federal Issues Agency Rule-Making & Guidance CDFI Minority Depository Institution Covid-19 Department of Treasury Bank Regulatory FDIC Federal Reserve OCC

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  • FDIC encourages investment in MDIs and CDFIs

    Federal Issues

    On October 16, the FDIC published a resource guide titled, “Investing in the Future of Mission-Driven Banks,” which promotes private and philanthropic investment partnerships with FDIC-insured Minority Depository Institutions (MDIs) and Community Development Financial Institution banks (CDFI banks). According to the guide, there are nearly 250 MDIs and CDFI banks insured by the FDIC, which provide services to “minority, low- or moderate-income (LMI), and rural communities at higher rates than mainstream banks,” and have combined capital of less than $40 billion. The resource guide notes that equity capital investments increase banks’ lending by “multiple[s] of the original investment,” and in some instances, between eight and ten times the original investment. Lastly, certain investments may also qualify for matching funds in existing support programs, and partnerships between banks, private companies, and philanthropic organizations can expand the support. 

    Federal Issues FDIC CDFI Minority Depository Institution

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