Why Side-by-Side Investing?
Side-by-side investing, in which a portion of the investing dollars come from a low-income housing tax credit fund and a portion from an individual bank, allows a bank to play a larger role in an investment and to target investment funds within a precise geography. This can be of value to a bank looking to maximize its CRA efforts. The bank investor benefits include:
- The fund usually provides due diligence materials, in the form of an underwriting package, that a banker can take to a committee for review. This can be a significant time and cost saver for a bank that is inexperienced in underwriting these investments.
- The fund provides administrative oversight for the investment.
- The bank gets additional CRA consideration than it would with only an investment in the fund because the side-by-side investment is targeted to the bank's footprint. Because the CRA regulation has specific geographic requirements, banks must be able to demonstrate that their investments in funds actually benefit, or have the potential to benefit, their assessment areas. Statewide investments with the potential to benefit a bank's assessment would provide less qualitative CRA consideration than would an investment that directly benefits the assessment area.
- The bank has the advantage of investing with an experienced CD investing partner, the fund.