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Community Developments Investments (November 2018)

A Look Inside …

Worker with fiber optic cableStock photo
Rural communities across the nation are working to develop internet access over fiber-optic networks, which industry experts say provide faster, more reliable internet access than other internet options.

Barry Wides, Deputy Comptroller for Community Affairs, OCC

The Office of the Comptroller of the Currency (OCC) recognizes that America’s digital divide—the gap between those with quality internet access and those without it—is greatest in our rural communities. To reduce this divide, the OCC encourages the national banks and federal savings associations (collectively, banks) it supervises to finance broadband infrastructure initiatives in rural communities struggling without reliable internet access.

This issue of the OCC’s Community Developments Investments discusses the important role banks play in helping rural communities gain access to reliable internet service through broadband networks. In addition, this issue profiles bank-financed broadband projects that are benefiting rural communities and for which these banks may receive consideration under the Community Reinvestment Act (CRA).

Broadband infrastructure includes a combination of wired and wireless services that connect households, businesses, and anchor institutions to the internet. Most frequently, wired connections are made using fiber optics, coaxial cable, and traditional copper telephone lines (or a combination thereof). Fiber-optic cable can be buried underground and undersea, hung on power and telephone lines, and connected to wireless towers. Internet access over a fiber-optic network is widely considered to be faster, more reliable, and better able to carry more data, and therefore more effective in helping reduce the digital divide than internet over cable, phone lines, and wireless networks. These latter services carry far less data and deliver that data more slowly; additionally, they are unreliable in wind storms, electrical outages, and natural disasters.

Broadband’s benefits include economic growth, improved educational opportunities, access to better health care information, greater employment prospects, improved public safety, and enhanced global competitiveness for American businesses. Conversely, communities with insufficient broadband capacity are disadvantaged by reduced manufacturing, employment, population, and educational opportunities.

Banks financing rural broadband development initiatives in underserved and low- and moderate-income (LMI) areas deliver benefits in three ways.

First, banks may help their own viability and bottom lines by ensuring that the banks’ rural customers can use the many internet-based banking services increasingly offered, such as online banking, loan applications, cash management, investing, and other financial management activities. These services are taken for granted in many urban communities, but are often unavailable or unreliable in rural areas without broadband access. The services are increasingly important in rural communities without traditional bank branches and where farmers and agriculture-related and small, local businesses need reliable internet access to manage production, order supplies, and sell commodities, livestock, and other goods in global markets.

Second, banks financing rural broadband development initiatives help to deliver educational and economic empowerment to communities. High-speed internet access allows schools to use high-tech education programs in classrooms and deliver distance learning for school-age, post-high-school, and adult students. Reliable internet allows for access to applications increasingly critical for job hunting, workforce development, telemedicine, recreation, tourism, and myriad other economic and social online applications.

Finally, banks can finance rural broadband development initiatives and support their CRA programs. Some banks have financed these projects using their public welfare investment (PWI) authority to make investments that benefit LMI communities, including distressed, underserved, rural, or tribal areas.1

Since July 25, 2016, under revised interagency CRA guidance,2 banks have received consideration for financing rural communications infrastructure that revitalizes or stabilizes distressed or underserved nonmetropolitan middle-income geographies or LMI rural areas. In recent years, OCC-supervised banks have recognized the need for financing broadband development initiatives in rural areas and have used their PWI authority in innovative ways to finance broadband projects that primarily benefit the public welfare of underserved rural and LMI areas in Alaska, Minnesota, Ohio, and other states. Some of these projects are profiled in this issue of Community Developments Investments.

Bank Methods for Financing Rural Broadband Development Initiatives

High-speed broadband3 is typically delivered over fiber-optic networks installed underground, undersea, or above ground to connect directly to homes, businesses, and public facilities. These networks are capable of transmitting data at speeds consistent with modern communications needs.

More than 30 percent of rural communities do not use high-speed broadband internet access, according to a U.S. Department of Commerce report.4 Thirty-nine percent of rural Americans (23 million people) and 41 percent of Americans living on tribal lands lack access to the Federal Communication Commission’s recommended broadband speeds.

To fulfill the need for rural broadband development initiatives, banks have partnered with local municipalities, community development financial institutions, and venture capitalists. Banks are leveraging local, state, and federal loan guarantee programs. Banks also are collaborating with other community and business leaders to form broadband cooperatives and partnerships, helping to craft strategic municipal planning, and providing advice to entrepreneurs financing new or expanded broadband networks.

This issue of Community Developments Investments discusses how banks are financing rural broadband development initiatives using a variety of methods, including the following:

  • Permanent financing through the U.S. Small Business Administration 7(a) Loan Program.
  • Construction financing, working capital, and other short-term loans.
  • New market tax credits financing.
  • PWI-qualified equity purchase of stock or cooperative shares.5
  • Subordinated debt from community development financial institutions.
  • Municipal bond investments.

This issue of Community Developments Investments also discusses federal government support for broadband development initiatives in distressed, underserved, and LMI rural areas, and how banks may use their PWI authority to finance these projects and receive CRA consideration for these activities.

OCC Support for Bank Financing for Rural Broadband Development Initiatives

This issue of Community Developments Investments reflects the OCC’s continuing commitment to informing and supporting banks interested in financing broadband development initiatives in rural LMI areas, designated disaster areas, or distressed or underserved nonmetropolitan middle-income geographies.

To this end, the OCC participates with the U.S. Department of the Treasury as a member agency in the Broadband Interagency Working Group, which works to ensure the effective deployment of federal assets for rural broadband development initiatives. Another member agency of this working group is the National Telecommunications and Information Administration (NTIA). The NTIA has contributed an article to this issue on the federal government’s efforts and is helping federal agencies identify the resources communities may use to expand broadband access.

The OCC’s Community Affairs staff members produced a video in early 2018 highlighting the RS Fiber project and how banks have financed rural broadband development initiatives. To learn more, watch “Bank Financing for Rural Broadband Initiatives,” available on the OCC’s Rural Broadband Financing and Development resources page at www.occ.gov/rural. These resources can also be found by searching with the keywords “rural broadband” on www.occ.gov.

After reviewing these resources, this issue of Community Developments Investments, and our video, we believe you will better understand the important role banks can play in financing broadband development initiatives in rural communities.

We hope that banks will share the OCC’s commitment to ensuring that rural, LMI, and other underserved communities benefit from quality internet access.

1 Under 12 USC 24(Eleventh) and its implementing regulation, 12 CFR 24, a national bank can make a PWI investment that primarily benefits LMI individuals or areas, or other areas targeted for redevelopment by a government entity, or an investment that would receive consideration under 12 CFR 25.23 as a “qualified investment” for purposes of the CRA. See 12 CFR 24.3. See also 12 USC 1464(c)(3)(A), 12 CFR 5.59, 12 CFR 160.30, and 12 CFR 160.36 (federal savings associations).

2 “Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment; Guidance” (Q&A) __.12(g)(4)(iii)–4, 81 Fed. Reg. 48,506, 48,528 (July 25, 2016).

3 The Federal Communications Commission defines home broadband as 25 Mbps download and 3 Mbps upload speed.

4 Only 69 percent of rural households use broadband internet service, or 6 percent less than in urban households, according to the “The State of the Urban/Rural Digital Divide,” National Telecommunications and Information Administration, U.S. Department of Commerce (August 10, 2016). Data from 1998 through 2015 showed that rural broadband use was 6 to 9 percentage points lower than in urban areas in those years.

5 See 12 CFR 24 (national banks); 12 CFR 5.59, 160.30, 160.36 (federal savings associations).