Friends of Community Development Banks

Community Development Banks Are Too Small To Fail

The Problem
Large banks have their friends. Community Development Banks that serve small businesses and low-income communities need our active friendship now. They are struggling to stabilize the neighborhoods and small businesses they serve that have been crippled by the financial meltdown and economic crisis.
 

The Players
Community Development Banks are small banks (the largest has under $3 billion in assets) and there are fewer than 100 of these CDFI banks in the whole country. These banks are often the only source of credit and financial services in low-income communities that have been hard hit by the current economic downturn. A large number are stressed because of the economy in the communities they serve.

Their legal name is Community Development Financial Institutions (CDFIs) because they are certified by the U.S. Treasury Department’s Community Development Financial Institutions (CDFI) Fund as targeting 60% or greater of their total business activity to low income communities and people.
 

The Solution
The Administration has announced that TARP funds will be available on favorable terms for these Community Development Financial Institutions (CDFIs).  On October 21, 2009 President Obama announced a program with three mechanisms to support job creation in small businesses:

1. Increases in SBA loan amounts,
2. TARP funds to banks under $1 billion (but only if they present a business plan showing how the money will support small business lending), and
3. TARP funds to banks certified as Community Development Financial Institutions (CDFIs).

The goal of the program, he said, is to “make more credit available to the smaller banks and community financial institutions that these [small] businesses depend on.” (Quoted from President’s speech on announcing the program.)

To qualify for the TARP CDFI bank program, banks must be certified by the Treasury as having as their primary mission service to low income communities or “target populations” (primarily minority populations).  The TARP CDFI bank program would provide Tier 1 equity capital to CDFI Banks, at 2% annually for 8 years, when the rate would rise to 9% annually. However, CDFI bank participation is “subject to approval by . . . federal bank regulators.”  This program will only work if it is implemented like the very first TARP program for very large banks. That program stabilized the financial system but didn’t do much for on-the-ground lending; now is the time to use TARP to make sure loans are made, especially in the communities that most need access to credit.

Treasury Secretary Timothy Geithner can implement this program quickly, broadly and expansively by making funds available to all CDFI banks, including financially distressed CDFIs.

Your Action
You can help by emailing Timothy Geithner, Secretary of the Treasury Department, and Larry Summers, Director of President Obama's National Economic Council. Urge them to implement the TARP CDFI bank program broadly and expansively. All CDFI banks must have accss to the CDFI Bank TARP program.

Email Timothy Geithner: timothy.geithner@do.treas.gov
Email Larry Summers: bryan_jung@who.eop.gov

You can see a sample email by clicking on this link.