April 30, 1992 - From the April, 1992 issue

L.A. Learns the ABCs of Bank CDCs

As Los Angeles considers the creation of a Bank CDC, the basics of this tool were described at a March conference at the Museum of Science and Industry, attended by bankers, non-profit housing and community development organizations, and government agencies. John Sower of the Development Finance Corporation in Washington described Bank CDCs as an accounting treatment (encouraged by bank regulators) to allow commercial banks, holding companies, and thrifts to invest in community development for long-term good.

What is a Bank CDC?

Bank CDCs differ from conventional bank investments in four ways: 1) Bank CDCs, unlike banks, can make equity investments in real estate and businesses; 2) Bank CDC investments receive more flexibility from bank examiners; 3) Bank CDC investments are treated separately for accounting purposes; and 4) Bank CDCs are considered favorably for Community Reinvestment Act requirements.

Bank CDCs make investments, not donations. These investments must yield public benefits such as assisting small businesses, creating jobs for low- and moderate-income residents, or financing affordable housing.

According to Sower, successful Bank CDCs are those which go beyond “charity” to produce tangible benefits for banks. These could include direct return on investment, “pump priming” for the banks’ other business, favorable community relations, or long-term area growth.

Bank CDCs may be either for-profit or non-profit, may be focused on a neighborhood, an entire city or a state. Most find a specific niche such as housing or community development. Typically, local governments do not invest in a Bank CDC but do co-invest in some of the deals the CDC makes possible.

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Models for Los Angeles

Other areas with Bank CDCs include Dallas, Richmond, VA and Oregon. In San Diego, a Bank CDC focuses on minority and women owned businesses. San Diego banks put up the money and serve on the board; local nonprofits and the city appoint other board members and assist with marketing and putting together deals.

Conference organizer Gordon Lejeune of City National Bank says that members of the Los Angeles Community Reinvestment Committee will now identify a niche for a Bank CDC and determine whether it will be a for-profit or non-profit CDC. From a small working group, this committee will eventually expand to a larger board that will include government officials and local non-profits.

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