For large financial institutions and even small institutions that choose to have their investments considered during a CRA examination, the issue of what qualifies as an investment for CRA purposes has become a hot topic. The revised CRA regulation defines qualified investments as an investment, deposit, membership share or grant that has community development as its primary purpose.
For CRA, community development is: affordable housing (including multifamily rental housing) for low- and moderate-income individuals; community services targeted to low- and moderate-income individuals; activities that promote economic development by financing small businesses or small farms (gross annual revenues of $1 million or less); and activities that revitalize or stabilize low- and moderate-income geographies. The regulation provides examples of the types of investments that are considered under the CRA investment test. They include, among other things, support for organizations that help finance small businesses and support for financial intermediaries (such as community development corporations) that lend or facilitate lending to low- and moderate-income areas.
When examiners evaluate a bank's performance under the investment test, four criteria are considered: 1) the dollar amount of qualified investments; 2) the innovativeness and complexity of the investments; 3) the responsiveness to credit and community development needs; and 4) the degree to which qualified investments are not provided routinely by private investors.
For more information on CRA-qualified investments, call Glenda Wilson at (314) 444-8317.