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Fed Issues Interim Rule Supporting Treasury Investment in CDFIs and Minority Depository Institutions

  • Fed announces interim final rule supporting Treasury Department investments in community development financial institutions and minority depository institutions
  • Announcement comes shortly after Treasury’s commitment to invest $9 billion in CDFIs and MDIs
  • Investment aims to help provide loans and other financing options to underserved communities

Summary by Dirk Langeveld

The Federal Reserve is backing the Treasury Department’s capital investments in community development financial institutions and minority depository institutions, with federal bank regulatory agencies announcing an interim final rule supporting it.

The Treasury is investing $9 billion in CDFIs and MDIs to support efforts to provide loans, grants, and forbearance to small businesses and consumers in low-income and underserved areas, including communities of color and rural areas. These communities have often been disproportionately affected by COVID-19.

The investment is being made through the Emergency Capital Investment Program, which was established under the Consolidated Appropriations Act of 2021. Under this program, the Treasury can purchase preferred stock or subordinated debt from qualifying CDFIs and MDIs, with the corresponding dividend or interest rate based on the institution meeting lending targets.

The Fed’s revised capital rules ensure that the investments “qualify as regulatory capital of insured depository institutions and holding companies.” They will become effective immediately after publication in the Federal Register, and comments will be accepted for 60 days after publication.

CDFIs and MDIs have been receiving greater attention as helpful avenues to assist efforts to improve equitable access to COVID-19 relief and other financing. Most notably, community financial institutions were granted first access to the Paycheck Protection Program portal after it opened to provide a new round of forgivable loans to small businesses earlier this year.

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