[Federal Register Volume 75, Number 44 (Monday, March 8, 2010)]
[Notices]
[Pages 10561-10565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-4786]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Community Development Financial Institutions Fund
Request for Public Comment: Community Development Financial
Institutions Fund, Community Development Financial and Technical
Assistance Awards, Native Initiatives, and Bank Enterprise Awards
AGENCY: Community Development Financial Institutions Fund, U.S.
Department of the Treasury.
SUMMARY: This notice invites comments from the public on issues
regarding the Community Development Financial Institutions (CDFI) Fund,
including the CDFI financial and technical assistance awards, the
Native Initiatives and the Bank Enterprise Awards (BEA). In particular,
the CDFI Fund is interested in comments from the public related to an
array of statutory requirements, in the interest of determining whether
the CDFI Fund should seek technical corrections or substantive
revisions to the authorizing statute. All materials submitted will be
available for public inspection and copying.
DATES: All comments and submissions must be received by May 7, 2010.
ADDRESSES: Comments should be sent by mail to: Scott Berman, Acting
Chief Operating Officer, CDFI Fund, U.S. Department of the Treasury,
601 13th Street, NW., Suite 200 South, Washington, DC 20005; by e-mail
to [email protected]; or by facsimile at (202) 622-7754. Please
note this is not a toll free number.
FOR FURTHER INFORMATION CONTACT: Information regarding the CDFI Fund
may be downloaded from the CDFI Fund's Web site at http://www.cdfifund.gov.
SUPPLEMENTARY INFORMATION: The CDFI Fund was created by the Riegle
Community Development and Regulatory Improvement Act of 1994 for the
purpose of promoting economic revitalization and community development
through investment in and assistance to community development financial
institutions (CDFIs). The CDFI Fund's mission is to expand the capacity
of financial institutions to provide credit, capital and financial
services to underserved populations and communities in the United
States.
The CDFI Fund achieves its purpose by promoting access to capital
and local economic growth through: (a) CDFI financial and technical
assistance awards, thereby directly investing in, supporting and
training CDFIs that provide loans, investments, financial services and
technical assistance to underserved populations and communities; (b)
allocations of New Markets Tax Credit authority to community
development entities, thereby attracting investment from the private
sector and facilitating their reinvestment in low-income communities;
(c) BEA, thereby providing an incentive to banks to invest in their
communities and in other CDFIs; (d) the Native Initiatives, thereby
providing financial assistance, technical assistance and training to
Native CDFIs and other Native entities proposing to become or create
Native CDFIs; (e) Capital Magnet Fund awards thereby providing
financial assistance grants to CDFIs and nonprofit housing developers
for the purpose of attracting private capital and increasing investment
in affordable housing and related activities; and (f) Financial
Education and Counseling Pilot awards, thereby providing grants to
organizations to provide innovative and replicable
[[Page 10562]]
financial education and counseling services for prospective homebuyers.
A. Community Development Financial Institutions Fund
1. Community Development Advisory Board
The statute that authorized the CDFI Fund established the Community
Development Advisory Board (Advisory Board), which consists of 15
members, nine of whom are private citizens appointed by the President.
The role of the Advisory Board is to advise the CDFI Fund Director on
the policies of the CDFI Fund (12 U.S.C. 4703(d)). The CDFI Fund
invites and encourages comments and suggestions germane to the need
for, purpose and selection criteria of the Advisory Board. The CDFI
Fund is particularly interested in comments in the following areas:
(a) Is the current composition of the Advisory Board adequate to
represent the needs of CDFIs?
(b) Are there other regulatory or government agencies that should
be represented on the Advisory Board?
(c) Is the current national geographic representation and racial,
ethnic and gender diversity requirement for Advisory Board membership
adequate?
(d) Should there be term limits for the private citizens appointed
to the Advisory Board?
(e) Should there be baseline requirements related to the knowledge
private citizens appointed to the Advisory Board have about CDFIs and/
or community development finance?
(f) Is the requirement to meet at least annually sufficient?
(g) Currently the statute requires that two individuals who are
officers of national consumer or public interest organizations (12
U.S.C. 4703(d)(2)(G)(iii)) be on the Advisory Board. Should this
requirement be more specific regarding what types of organizations
fulfill the requirement?
B. Community Development Financial Institutions (CDFI) Awards
1. Definitions
The statute that authorizes the CDFI Fund defines low-income as an
income, adjusted for family size, of not more than 80 percent of the
area median income for metropolitan areas and, for nonmetropolitan
areas, the greater of 80 percent of the area median income or 80
percent of the statewide nonmetropolitan area median income (12 U.S.C.
4702(17)). The statute defines targeted population as individuals or an
identifiable group of individuals, including an Indian tribe, who are
low-income persons or otherwise lack adequate access to loans or equity
investments (12 U.S.C. 4702(20)). The CDFI Fund is interested in
comments regarding all definitions found in the authorizing statute,
including the following questions:
(a) Are the definitions for low-income and targeted population
still viable? If not, what alternative definitions might be considered?
(b) Should other definitions be added to the statute to ensure that
CDFI awards target areas of ``high'' economic distress? If so, what
criteria should be utilized?
(c) The term ``subsidiary'' means any company which is owned or
controlled directly or indirectly by another company and includes any
service corporation owned in whole or in part by an insured depository
institution or any subsidiary of such service corporation; except that
a CDFI that is a corporation shall not be considered to be a subsidiary
of any insured depository institution or depository institution holding
company that controls less than 25 percent of any class of the voting
shares of such corporation, and does not otherwise control in any
manner the election of a majority of the directors of the corporation.
(12 U.S.C. 4702(19); 12 U.S.C. 1813(w)(4)). The term ``affiliate''
means any company that controls, is controlled by, or is under common
control with another company (12 U.S.C. 4702(3); 12 U.S.C. 1841(k)).
Are these definitions still viable? If not, what alternative
definitions might be considered?
(d) The Federal Housing Finance Agency (FHFA) has issued its final
rule regarding CDFI eligibility for membership in the Federal Home Loan
Bank System. In its final rule, the FHFA provided several financial
definitions (e.g., net asset ratio, operating liquidity ratio, gross
revenues, operating expenses, restricted assets, unrestricted cash and
cash equivalents). Should the CDFI Fund adopt any or all of these
definitions?
(e) Should the CDFI Fund align its definitions for consistency
across all CDFI Fund programs?
2. Certification
The CDFI Fund's authorizing statute defines a community development
financial institution as an entity that: (i) Has a primary mission of
promoting community development; (ii) serves an investment area or
targeted population; (iii) provides development services in conjunction
with equity investments or loans, directly or through a subsidiary or
affiliate; (iv) maintains, through representation on its governing
board or otherwise, accountability to residents of its investment area
or targeted population; and (v) is not an agency or instrumentality of
the United States, or of any State or political subdivision of a State
(12 U.S.C. 4702(5)). The CDFI Fund provides further clarification and
guidance regarding CDFI certification in its regulations at 12 CFR part
1805.201. The CDFI Fund invites and encourages comments and suggestions
germane to the criteria and purpose of CDFI certification. The CDFI
Fund is particularly interested in comments regarding:
(a) Is the criteria established for CDFI certification adequate to
ensure that only highly-qualified CDFIs obtain the certification?
Should the CDFI Fund seek to only certify highly-qualified CDFIs?
(b) Are there types of CDFIs that are prohibited from certification
because of the criteria; if so, what changes are needed?
(c) Should the CDFI Fund more closely align its certification with
the FHFA rule requiring a CDFI to submit with its application an
independent audit conducted within the prior year, more recent
quarterly statements (if available) and financial statements for two
years prior to the audited statement?
(d) Should CDFIs be re-certified on a regular basis and, if so, how
often?
(e) Presently, the CDFI Fund only requires a CDFI to notify it of
material events when applying for an award. Should such notification be
required from all certified CDFIs on a regular basis (e.g., every year;
every three years)?
(f) Currently, CDFI certification review does not entail an
assessment of an organization's underlying financial soundness. Should
the CDFI Fund require any or all of the following financial
documentation as a condition of certification?
(i) Net asset ratio to total assets of at least 20 percent, with
net and total assets including restricted assets (net assets are
calculated as the residual value of assets over liabilities);
(ii) Positive net income (gross revenues less total expenses)
measured on a three-year rolling average;
(iii) Ratio of loan loss reserves to loans and leases 90 days or
more delinquent (including loans sold with full recourse) of at least
30 percent, and loan loss reserves at a specified balance sheet account
that reflects the amount reserved for loans expected to be
uncollectible;
(iv) Operating liquidity ratio of at least 1.0 for the four most
recent quarters and for one or both of the two preceding years
(numerator of the ratio
[[Page 10563]]
includes unrestricted cash and cash equivalents and the denominator of
the ratio is the average quarterly operating expense).
(h) Should the CDFI Fund require certified CDFIs to annually submit
current information on financial viability and other data necessary to
assess the financial condition and social performance of the CDFI
industry?
3. Holding Companies, Subsidiaries and Affiliates
The CDFI Fund's authorizing statute provides conditions for CDFI
qualification for a depository institution holding company, subsidiary
or affiliate, establishing that a holding company may qualify as a CDFI
if the holding company and the subsidiaries and affiliates of the
holding company collectively satisfy the requirements to be certified
as a CDFI (12 U.S.C. 4702(5)(B) and (C)). The CDFI Fund invites and
encourages comments and suggestions germane to this issue,
specifically:
(a) Should a certified CDFI that is a holding company, or its
subsidiary and affiliate, be allowed to apply for a CDFI Fund award if
the depository institution is also applying during the same funding
round?
(b) Should holding companies, subsidiaries and affiliates of
depository institutions be extended separate CDFI certifications,
regardless of whether the entities can collectively satisfy the
certification requirements?
(c) Should all CDFI institution types be held to the ``Conditions
for Qualification of Holding Companies'' set forth at 12 U.S.C.
4702(5)(B), as are depository institution holding companies?
4. Geographic and Institutional Diversity
The CDFI Fund's authorizing statute states that the CDFI Fund
``shall seek to fund a geographically diverse group of applicants,
which shall include applicants from metropolitan, nonmetropolitan, and
rural areas'' (12 U.S.C. 4706(b)). The CDFI Fund invites and encourages
comments and suggestions relating to geographic diversity, especially:
(a) Are CDFI awards adequately geographically diverse; if not, how
should the CDFI Fund ensure geographic diversity?
(c) How should the CDFI Fund define metropolitan area?
(d) How should the CDFI Fund define nonmetropolitan area?
(e) How should the CDFI Fund define rural area?
(f) How should the CDFI Fund define underserved rural area?
(g) Are there other underserved areas that should be considered for
purposes of geographic diversity?
The CDFI Fund invites and encourages comments regarding
institutional diversity as well, including:
(a) Should institutional diversity be a priority of the CDFI Fund?
(b) Should the CDFI Fund designate a specific amount of funding for
regulated depository institutions separately from loan funds and
venture capital funds? If so, what proportion of the funding should be
designated for CDFI banks and CDFI credit unions?
(d) If a special amount is not designated, what can the CDFI Fund
do to achieve institutional diversity?
5. Financial Assistance
The CDFI Fund's authorizing statute allows flexibility in the forms
of assistance provided. These may include equity investments, deposits,
credit union shares, loans, grants and technical assistance, with
certain limitations (12 U.S.C. 4707(a)(1)). The statute also sets forth
the permissible uses of CDFI financial assistance award proceeds which
include, among others, certain commercial facilities, businesses,
community facilities, affordable housing and basic financial services
(12 U.S.C. 4707(b)(1). The CDFI Fund welcomes comments on issues
relating to the forms of financial assistance, qualifications, uses,
and general structure, particularly with respect to the following
questions:
(a) As implemented through its Notices of Funds Availability
(NOFA), which are issued for each funding round, the CDFI Fund has
structured two categories for financial assistance applicants:
``Core'' and ``Small and Emerging CDFI Assistance'' (SECA) for
applicants that were recently established or that have smaller assets
compared to institutional type. Despite these two award categories,
many CDFIs have grown and expanded their reach in recent years. Is
there a point at which a CDFI should be considered to have
``graduated'' from and no longer be eligible for CDFI awards? If so,
what should be the criteria (e.g., successful award history, asset
size, national reach, etc.)?
(b) If a CDFI were to ``graduate'' from CDFI award eligibility,
should another program be developed for such an institution; if so,
what type of financial assistance should those institutions receive?
(c) Under the CDFI Fund's authorizing statute, the CDFI Fund has
the authority to make long-term, low-interest loans to CDFIs, dependent
on matching funds. Is there a need for a loan product in addition to
the CDFI financial and technical assistance awards and its lending
authority? If so, please describe the product, e.g., terms and
conditions, matching funds requirement, etc. Should funds be diverted
from the CDFI awards to establish a loan pool?
(d) Is there a need for a CDFI federal loan guarantee and if so how
would it be structured?
(e) Should a category be created specifically for CDFIs that serve
a national market or are intermediaries? If so, what proportion of the
appropriation should be allocated for such applicants?
(f) Are there changes the CDFI Fund could make to the financial and
technical assistance awards that would make it more accessible or
beneficial to certified CDFI banks?
(g) Should the CDFI Fund provide a technical assistance award to an
organization (i.e., a community development corporation) that proposes
to create a new CDFI, even if that organization is not a CDFI itself?
(h) Should CDFIs be required to provide financial education to
their customers; if so should there be a minimum level of education?
6. Award Cap
The CDFI Fund's authorizing statute states that except for
technical assistance, the CDFI Fund cannot provide more than $5 million
of assistance in total during any three-year period to a single CDFI,
its subsidiaries and affiliates (12 U.S.C. 4707(d)). An exception is
allowed for up to an additional $3.75 million during the three-year
period for a CDFI proposing to establish a subsidiary or affiliate for
the purpose of serving an investment area or targeted population
outside a State or metropolitan area presently served by the CDFI. The
CDFI Fund seeks comments regarding whether awards should have a cap,
specifically:
(a) Should CDFI Fund award amounts have a cap or should award
amounts be based on merit and availability?
(b) Should subsidiaries and affiliates have a funding cap that is
separate from their parent CDFI?
(c) Should the CDFI Fund make an award to only one affiliated
organization during the same funding round?
(d) Is ``$5 million of assistance in total during any three-year
period'' too restrictive? If so, what are the alternatives, if any?
7. Matching Fund Requirements
The CDFI Fund's authorizing statute requires that financial
assistance awards
[[Page 10564]]
must be matched with funds from sources other than the federal
government on the basis of not less than one dollar for each dollar
provided by the CDFI Fund. It further states that the matching funds
``shall be at least comparable in form and value to assistance provided
by the Fund'' (12 U.S.C. 4707(e)). Assistance cannot be provided until
the CDFI has secured firm commitments for the matching funds. The CDFI
Fund encourages comments and suggestions germane to match requirements
established in the statute, specifically:
(a) Does the dollar-for-dollar matching funds requirement restrict
a CDFI's ability to apply for a financial assistance award? If so, what
should be the matching funds requirement?
(b) Should the matching funds continue to be restricted to
comparable form and value or should any type and source of funding be
allowed as matching funds?
(c) The statute provides certain exceptions to the matching funds
requirement and provides the CDFI Fund the flexibility to reduce the
match requirement by 50 percent in certain circumstances. Is this
appropriate?
(d) The statute allows the applicant to provide matching funds in a
different form if the applicant has total assets of less than $100,000;
serves nonmetropolitan or rural areas; and is not requesting more than
$25,000 in assistance. Should this provision apply to all applicants?
Should the asset size and assistance request be increased?
C. CDFI Training
The CDFI Fund's authorizing statute gives the CDFI Fund the
authority to create a training program to increase the capacity and
expertise of CDFIs and other members of the financial services industry
to undertake community development finance activities (12 U.S.C. 4708).
In August 2009, the CDFI Fund announced a new Capacity-Building
Initiative to greatly expand technical assistance and training
opportunities for CDFIs nationwide. Comments regarding this new
initiative are welcome, specifically:
(a) Will the Capacity-Building Initiative, as currently structured,
provide the training that CDFIs need to deliver financial products and
services to underserved communities nationwide?
(b) The first training products that will be offered by the
Capacity-Building Initiative will include affordable housing and
business lending, portfolio management, risk assessment, foreclosure
prevention, training in CDFI business processes, and assistance with
liquidity and capitalization challenges. What other topics should this
initiative provide in the future?
(c) Are other technical assistance and training resources needed?
D. Capitalization Assistance To Enhance Liquidity
The CDFI Fund's authorizing statute created a Liquidity Enhancement
(LE) Program (12 U.S.C. 4712) that has never received an appropriation.
In general, the statute authorized the CDFI Fund to provide assistance
for the purpose of providing capital to organizations to purchase loans
or otherwise enhance the liquidity of CDFIs if the primary purpose of
the organization is to promote community development. If funds were
appropriated for this program:
(1) Any assistance provided by the CDFI Fund would require matching
funds on the basis of not less than dollar-for-dollar and would need to
be comparable in form and value to the assistance provided by the CDFI
Fund; (2) organizations receiving LE Program assistance would not be
able to receive other financial or technical assistance from the CDFI
Fund; (3) awards could not be made for more than $5 million to an
organization or its subsidiaries or affiliates during any three-year
period; and (4) certain compliance information would be required. The
CDFI Fund welcomes comments on issues relating to the LE Program,
particularly with respect to the following questions:
(a) Do CDFIs have a liquidity need?
(b) Would the LE Program, as structured, help address CDFIs'
liquidity needs?
(c) Should the restrictions related to the award cap and/or
matching funds be removed as a means to create larger impacts?
(d) What changes are needed to make this a viable initiative?
(e) Are there other program ideas better suited to providing
liquidity for CDFIs?
E. Native Initiatives
In its fiscal year 2001 appropriation and every fiscal year since,
the CDFI Fund has been appropriated funds for the purpose of making
financial assistance and technical assistance awards and to provide
training designed to benefit Native American, Alaskan Native and Native
Hawaiian communities (collectively referred to as ``Native
Communities''). While Native Initiatives awards have been through
several iterations, the current award vehicle are Native American CDFI
Assistance (NACA) awards through which the CDFI Fund provides financial
and technical assistance awards to Native CDFIs. The CDFI Fund welcomes
comments on issues relating to the Native Initiatives, particularly
with respect to the following questions:
(a) Should the CDFI Fund seek statutory authority to make the NACA
awards permanent?
(b) What other services should the CDFI Fund provide to Native
Communities?
(c) What improvements could be made to Native Initiatives and, in
particular, to NACA awards?
(d) Should there be a limit on the number of technical assistance
grants an applicant can receive?
(e) Should the CDFI Fund provide ``seed funding'' financial
assistance grants to non-certified, emerging Native CDFIs for the
purpose of increasing lending in Native Communities?
(f) Many Native CDFIs have grown and expanded their reach in recent
years. Is there a point where a Native CDFI should be seen as having
``graduated'' from NACA financial assistance and be required to compete
for a CDFI financial and technical assistance award? Is so, what should
be the criteria?
F. Bank Enterprise Awards (BEA)
The purpose of BEA is to provide an incentive for insured
depository institutions to increase their activities in distressed
communities and provide financial assistance to CDFIs. The CDFI Fund
welcomes comments on issues relating to the eligibility of certain
activities, qualifications and general program structure, particularly
with respect to the following questions:
(1) Are the qualified activity definitions used for BEA still
applicable; are there any new definitions that should be included (if
so, please provide new definitions)?
(2) An insured depository institution may apply for a BEA award
based on its activities during an assessment period, which opens the
program to all FDIC-insured banks and thrifts. The statute that
authorized BEA (12 U.S.C. 1834a(j)(3)) states that an insured
depository institution is defined by section 3(c)(2) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(c)(2)), which does not include
credit unions whose deposits are insured by the National Credit Union
Administration. Currently, credit unions can only be qualified
recipients of loans and deposits from BEA applicants (``CDFI
Partners''). Should only banks and thrifts certified by the CDFI Fund
be eligible to apply for BEA? Should federally insured, certified CDFI
credit unions be eligible for BEA? Should only
[[Page 10565]]
those applicants of a certain asset class (e.g., ``small'' banks with
less than $1.098 billion in assets) be permitted to apply for BEA?
Should there be a minimum funding level for awards (i.e., $6,000)?
(3) The statute that authorized BEA states that insured depository
institutions that meet the community development organization
requirements shall not be less than three times the amount of the
percentage applicable for insured depository institutions that do not
meet such requirements (12 U.S.C. 1834a(a)(5)). The statute does
require that CDFI-certified banks receive priority in determining award
amounts and in funding awards. Should a new priority funding structure
be created to specifically fund certified CDFIs before all other types
of institutions?
(4) The statute that authorized BEA states that loans and other
assistance provided for low- and moderate-income persons in distressed
communities, or enterprises integrally involved with such
neighborhoods, are qualified activities (12 U.S.C. 1834a(a)(2)(A)).
(a) By applying the criteria of 12 U.S.C. 1834a(b)(3),
approximately 2,700 census tracts fully meet the definition of a BEA
distressed community. Should the definition of a BEA distressed
community be revised and, if so, how?
(b) Should the geographic requirement be eliminated? If so, why?
(c) Should the definition of ``integrally involved'' (set forth at
12 CFR 1806.103(gg)) be changed? If so, how?
(d) Should a Community Reinvestment Act rating be used by the CDF
Fund in its evaluation of a depository institution's commitment to
serving low-income and underserved communities?
(5) The statute that authorized BEA specifies the types of
qualifying activities and states that the award must be based on an
increase in those activities over a period of time (12 U.S.C.
1834a(a)(2)). The current BEA structure bases award amounts solely on a
formula and requires a demonstrated increase in activity, making BEA
retroactive by design. How should the BEA be restructured, if at all?
For example, should BEA have a leverage requirement; should awards be
based on future or proposed community development activities, etc.?
(6) The BEA regulations (12 CFR part 1806.201-305) outline the
measuring and reporting of qualified activities, calculations for
estimating award amounts including the selection process for awards,
and award agreements, sanctions, and compliance.
(a) Should these sections be updated? If so, how?
(b) Are any changes needed to make the program work better?
G. Small Business Capital Enhancement Program
The Riegle Community Development and Regulatory Improvement Act of
1994 included a Small Business Capital Enhancement (SBCE) Program (12
U.S.C. 4741), which has never received an appropriation. If funds were
appropriated for this program: (1) The SBCE would be a complement to
small business capital access programs (CAPs) implemented by certain
States that assist financial institutions in providing access to needed
debt capital; (2) any State would apply to the CDFI Fund for approval
to be a participating State under the SBCE and to be eligible for
reimbursement by the CDFI Fund if that State has an established CAP and
funds available in the amount of at least $1 for every two people
residing in the State are available and committed for use; (3) the SBCE
would provide matched funding to States to provide portfolio insurance
for business loans based on a separate loss reserve fund for each
financial institution; (4) loan terms would be at the discretion of the
borrower and financial institution; (5) a participation agreement would
be required from all parties and, upon receipt of agreement, the
participating State would enroll the loan and make a matching
contribution to the reserve fund (not less than the premium charges
paid by the borrower and the financial institution); (6) the premium
charges would not be permitted to be less than three percent or more
than seven percent of the amount of the loan; (7) each State would be
required to file a quarterly report with the CDFI Fund indicating the
total amount of contributions, among other information; and (8) the
CDFI Fund then would reimburse the State in an amount equal to 50
percent of the amount of contributions by the State to the reserve
funds that are subject to reimbursement. The CDFI Fund welcomes
comments on issues relating to the viability of such a program,
especially with respect to the following questions:
(a) Is there a need for the SBCE?
(b) What changes should be made to the SBCE legislation to make it
most effective?
(c) Are the limits on reimbursement adequate to meet current need?
(d) Is there another program idea better suited to the needs of
America's small businesses?
H. General Comments
The CDFI Fund is interested in any additional comments regarding
the Riegle Community Development and Regulatory Improvement Act of
1994.
Authority: 12 U.S.C. Chapter 47, Subchapters 1-2; 12 U.S.C.
1834a.
Dated: March 2, 2010.
Donna J. Gambrell,
Director, Community Development Financial Institutions Fund.
[FR Doc. 2010-4786 Filed 3-5-10; 8:45 am]
BILLING CODE 4810-70-P