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By Barry Wides, Deputy Comptroller for Community Affairs
Banks are meeting the needs of their communities by working together. Multibank community development corporations (MBCDC) offer a collaborative approach that has been successful over the last two decades and, because of their flexibility, remain so today. They are designed to fill financial gaps through bridge loans, venture capital, or gap financing, when housing or economic development plans are good. MBCDCs can finance these projects because they spread the risk on projects that cannot qualify for conventional bank financing.
This issue of the Community Development Investments e-zine looks at how multibank CDCs are structured and how they are filling financing gaps. Whether an MBCDC is for-profit or nonprofit is determined by the membership based on what works best to meet the CDC's goals. Both structures can get the job done.
Andrew Hamilton, a consultant for several Midwest-based CDCs, shares his advice on the planning activities needed to form a for-profit multibank CDC in "Tips for Creating For-Profit Multibank CDCs." His advice can help you examine most aspects of the formation process. He also points out the decisions to be made.
If you want to know how a for-profit, multibank CDC works, see the article "Orchestrating Community Economic Development," which looks at the Jefferson Marion Washington CDC and the Upper Illinois River Valley CDC. Both CDCs are structured as for-profit corporations. They were established in the early 1990s with a technical assistance grant from the Illinois Department of Commerce to cover the start-up and organizational fees of forming the CDC. And both are still stimulating economic development in rural areas of Illinois.
For a glimpse into the operation of a nonprofit CDC, Andrew Gordon's article "Gap Financing Leads to Economic Development" illustrates the advantages of that structure. Arizona MultiBank CDC provides long-term funding for economic development activities that facilitate conventional financing and leverages other private and public funds. Even when a borrower lacks sufficient equity or has limited experience, the Arizona MultiBank CDC can bring both financial and technical assistance to a project.
Both the for-profit and nonprofit structures allow bank members to reach their community development goals. Both structures can draw deals from members and outside contacts, when the CDC's expertise and value are recognized throughout the community.
National banks can participate in multibank CDCs through 12 CFR 24 (the Part 24 authority). Under the authority, banks can make investments, directly or indirectly, in any activity that could qualify as a Community Reinvestment Act (CRA) investment as well as activities that primarily benefit: (1) low- and moderate-income persons or areas; or (2) government targeted areas for revitalization. It also sets the maximum aggregate public welfare investment limit at 15 percent of capital and surplus under the authority. For further information, and to see how Part 24 has been changed by the Housing and Economic Recovery Act of 2008 (HERA), read: "Congress Restores the Public Welfare Investment Authority" article.
Investments in multibank CDCs can also be considered under the CRA. The Interagency Questions and Answers Regarding Community Reinvestments in 2001 addressed loans to CDCs (66 Federal Register 36626) and in 2006 addressed investments in CDCs (71 Federal Register 12433).
For additional information about multibank community development financing, see the OCC articles and publications listed below. For more information about the Part 24 authority or CRA consideration, national banks can contact the OCC's District Community Affairs Officers.