Yesterday the Treasury Department released additional details regarding enhancements to the Community Development Financial Institution initiative that was announced last October. Under the CDFI program, institutions the Treasury has certified as targeting underserved communities in more than 60 percent of their small business lending and other economic development activities would now be eligible to receive capital investments at a dividend rate of 2 percent, compared to the 5 percent rate that was offered under the Capital Purchase Program (CPP). Key enhancements to the program that were announced yesterday include the following:
- An Increase in the Maximum Amount of Capital Available to CDFIs: The program as outlined in October 2009 limited the amount of capital for which CDFIs could apply to 2 percent of risk-weighted assets. The final terms will allow institutions to apply for Treasury investments of up to 5 percent of risk-weighted assets, significantly increasing the potential impact on lending in low-income communities. (Credit unions can apply for an equivalent amount of total assets.)
- The Program Will Expand the Number of Eligible Institutions by Allowing CDFIs to Receive Capital from the Treasury Matched to Private Investments: CDFIs will need approval from their regulator to participate in this program. For CDFIs that might not otherwise be recommended for participation by their regulator, the Treasury will offer matching capital investments, up to 5 percent of risk-weighted assets, against private investments on a dollar-for-dollar basis, provided that the combined amount would return the institution to a viable position. This enhancement will allow the program to reach a broader range of institutions serving vital needs in their communities while protecting taxpayer interests.
For further information, please contact L. Allyn Dixon, Jr. at 515-246-4520 or adixon@dickinsonlaw.com.