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August 06, 2011
Community Development Banks: Too Important to Fail
    by Robert Kropp

The National Community Investment Fund reports that the risks and returns of Community Development Banking Institutions are similar to traditional banks, but that they have far greater social impact.

In 2009, the National Community Investment Fund (NCIF) developed a set of Social Performance Metrics that allows users "to search all domestic banks and thrifts according to an institution's organizational, financial and social performance data." The Metrics are publicly available on the organization's website.

NCIF recently published its first
CDBI Landscape Document, whose findings, because they come at a time when "the current economic downturn has disproportionately impacted the low- and moderate-income neighborhoods served by CDBIs," are all the more important.

Included among the CDBIs evaluated by NCIF are the 85
Community Development Financial Institutions (CDFIs) certified by the US Treasury. However, the actual number of CDBIs is substantially higher, with 483 domestic banks and thrifts designated as such by NCIF. CDBIs are defined by NCIF as financial institutions "that have a mission of community and economic development."

The NCIF Social Performance Metrics rate financial institutions according to Development Lending Intensity (the percentage of housing loans originated and purchased in low- and moderate-income areas), and Development Deposit Intensity (the percentage of their branches located in low- and moderate-income areas).

Compared to other banks in their peer group (that is, banks with less than $2 billion in assets), CDBIs greatly outperform according to NCIF's metrics. Their Development Lending Intensity is three times higher than those in their peer group, and their Development Deposit Intensity is more than 5.3 time higher.

As for financial performance, CDBIs only modestly underperform their peer group, demonstrating to investors "a sustainable business model with significant and consistent impact in local communities," according to the report.

The report states, "This underscores the need for stakeholders public sector, private sector and philanthropic to support CDBIs in these stressed economic times. This will ensure that access to responsibly priced financial services continues to be made available to economically vulnerable communities around the country."

"Perhaps this is the time when Congress will consider legislating to protect and grow all institutions that are mission oriented and work to bring the 30-40 million underserved Americans into the financial mainstream," the report continues.


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