Community Developments Investments
Community Developments Investments Community Developments Investments Community Developments Investments
Community Developments Investments

Winter 2005

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CDCs: ‘corrective capitalism’ at work

Dorothy Mae Richardson and residents of Pittsburgh campaigning for better housing

In 1968, Dorothy Mae Richardson and residents of Pittsburgh campaigned for better housing.   Ms. Richardson enlisted city bankers and government officials to join with her block club to improve her community by making loans, capitalizing a revolving loan fund, and rehabilitating dilapidated housing units.   (Photo compliments of Neighborhood Reinvestment Corp.)  

Today’s community development corporations have their origins in the 1960s. They arose when the war on poverty demonstrated that many communities lacked the financial resources to extricate themselves from decades of economic decline wrought by such forces as de-industrialization and race discrimination. In the beginning CDCs had more human than financial capital. In desperate places like Brooklyn’s Bedford-Stuyvesant area, CDCs were led by community activists going door to door to generate support for creative change as the only viable alternative to the violence and despair that characterized so many of the nation’s inner cities. In rural areas the same positive forces slowly began to take hold in communities no longer sustained by farming, forestry, and mining.

CDCs initially found support largely among federal anti-poverty programs and private philanthropy. They soon demonstrated a capability for transforming despair into hope by creating opportunities where there had been none: building homes, supplying start-up capital for local entrepreneurs, and creating jobs. Most importantly, in the absence of private investment, they developed the capacity to serve as catalysts for community revitalization by taking direct action: purchasing and rehabilitating real estate, and supporting or creating local business ventures. Although the war on poverty, as such, was relatively short-lived, CDCs not only survived its demise, but developed broader alliances — with philanthropies, major corporations, and financial institutions — as the years went on.

Early on, the CDC concept attracted congressional support and was soon adapted to banking. In 1965, OCC authorized banks to make equity investments in community development corporations and projects. Enactment of the Community Reinvestment Act (CRA) in 1977 created a new impetus for these “agents of corrective capitalism,” as CDCs have been called. Banks seeking to meet their CRA obligations soon discovered the value of working with — or creating — community-based organizations that could tap into the energy and expertise inherent in neighborhoods once dismissed as hopeless. In 1992, the authority to invest in CDCs to improve the public welfare was codified in statute and regulation (12 USC 24(Eleventh) and 12 CFR Part 24, commonly known as “Part 24”.

To date, OCC has authorized more than 40 national banks to create subsidiary CDCs involving investments of more than $2.6 billion. Today’s CDCs, whether independent or bank-owned, represent a proven way to link a community’s internal resources with external investor interest. The result is a form of financial synergy that has directly or indirectly benefited millions of Americans.