CRA Credit for CD Purchased from a Women or Minority-Owned Bank

Issue/Inquiry

Would the Bank receive credit under the Community Reinvestment Act (“CRA”) by purchasing a Certificate of Deposit (“CD”) from a minority-owned or women-owned bank, regardless of location?

Response Summary

The Bank should receive CRA credit for purchasing a CD from a women or minority-owned financial institution, regardless of location, provided that the activities of the institution benefit a state-wide or regional area in which the Bank’s assessment area is located. If the Bank is otherwise responsive to the community development needs of its assessment area, then it should not matter whether the activities of the minority-owned or women-owned financial institution benefit the Bank’s assessment area.

Response Detail

A “qualified investment” is “a lawful investment, deposit, membership share or grant that has as its primary purpose community development.” 12 CFR §228.12(t).

The term “community development” means:

• Affordable housing (including multifamily rental housing) for low or moderate-income individuals
• Community services targeted to low or moderate-income individuals
• Activities that promote economic development by financing businesses or farms which meet the size eligibility standards of the Small Business Administration’s Development Company or Small Business Investment Company programs, or have gross annual revenues of $1 million or less
• Activities that revitalize or stabilize low or moderate-income geographies, designated disaster areas, or distressed or underserved nonmetropolitan middle-income geographies designated by a federal banking regulator based on factors such as rates of poverty, unemployment, or population density
• Loans, investments, and services that support or facilitate projects conducted in accordance with the HUD Neighborhood Stabilization Program (“NSP”), which are provided no later than two years after the date funds are appropriated for the NSP and benefit low, moderate, and middle-income individuals and geographies within the Bank’s assessment area or areas outside the Bank’s assessment area, provided that the Bank has adequately addressed the community development needs of its assessment area. 12 CFR §228.12(g).

An example of a qualified investment is a deposit to a financial intermediary, such as a community development organization or minority-owned and woman-owned financial institution, that primarily lends or facilitates lending in low and moderate-income areas, or to low and moderate-income individuals, in order to promote community development. Interagency Questions and Answers Regarding Community Reinvestment (“Interagency Q&A”), §___.12(t) – 4, A4.

In this case, the Bank’s purchase of a CD from a women or minority-owned financial institution could be considered a qualified investment.

A financial institution’s activity is considered a qualified investment if it supports an organization or activity that covers an area which is larger than, but includes, the institution’s assessment area. There does not need to be a direct or immediate benefit to a financial institution’s investment area in order for an investment to be considered a qualified investment, provided that the purpose or function of the organization for which the investment is made includes serving geographies or individuals located within the institution’s assessment area.

In addition, a financial institution could receive consideration for activities that benefit geographies or individuals located in a broader statewide or regional area that includes the institution’s assessment area. Examiners could consider these activities, even if they will not benefit the assessment area, provided that the institution has been responsive to the community development needs of its assessment area. “Regional areas” are those which have some geographic, demographic, and/or economic interdependencies, such as “the tri-county area” or the “Mid-Atlantic states”. Interagency Q&A, §___.12(h) – 6, A6; §___.12(h) – 7, A7.

This means that the location of the minority-owned or women-owned financial institution from which the CD is purchased should not matter, provided that its activities benefit a state-wide or regional area that includes the Bank’s assessment area. However, if such activities do benefit a state-wide or regional area that includes the Bank’s assessment area, the examiners could consider them for CRA purposes, even if the Bank’s own assessment area receives no benefit, as long as the Bank is otherwise responsive to the community development needs of its assessment area.

In order to obtain credit for CRA purposes for purchasing a CD from a minority-owned or women-owned financial institution, the Bank must be prepared to demonstrate that:

• The financial institution is minority or woman-owned.
• The activities of such an institution benefit low to moderate-income geographies, or low to moderate-income individuals, in order to promote community development.
• The activities of such an institution benefit a state-wide or regional area in which the Bank’s assessment area is located.
• The activities benefit the Bank’s assessment area, or, if they do not, the Bank is responsive to the needs of its assessment area.

This entry was posted on Monday, December 3rd, 2018 at 6:00 am.