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The Community Reinvestment Act (CRA) was passed by Congress in 1977 and requires depository institutions to help meet the credit needs in the communities in which they operate. More specifically, depository institutions are required to demonstrate that they provide loans, investments and services in support of community and economic development, and that such products and services are reasonably available and used by all segments of the institution’s defined service areas, including low- and moderate-income borrowers and individuals living in low- and moderate-income census tracts.
Maintaining compliance with the CRA has become critical for all banks. If the bank’s CRA record is poor, a bank’s request to expand through a merger or acquisition or gain Federal Home Loan Bank advances can be denied. Though there are a variety of opinions in the industry and on Capitol Hill regarding possible changes to CRA requirements, such changes have been very infrequent. It seems clear that CRA will be a requirement of the banking industry for the foreseeable future.
Since July 1, 1997, the joint rule under CRA has strongly redefined how financial institutions will be graded on their CRA performance. The joint rule expanded the definition of community, which is now defined in terms of major cities or political districts, as well as any contiguous surrounding areas in which the bank originated or purchased a substantial portion of its loans. The rule also expanded the definition of a "qualified investment." Investment in a fund licensed as a Small Business Investment Company, administered by the Small Business Administration, is specifically authorized under the joint rules as a "qualified investment."
To learn more about Community Reinvestment Act, please visit ffiec.gov/cra.
The Small Business Investment Company (SBIC) program was created by Congress in 1958. SBICs, licensed by the Small Business Administration, are privately owned and managed investment firms. They are participants in a vital partnership between government and the private sector economy. With a combination of private capital and funds borrowed at favorable rates through the federal government, SBICs provide venture capital to small independent businesses, both new and already established. All SBICs are profit-motivated businesses. A major incentive for SBICs to invest in small businesses is the chance to share in the success of the small business as they grow and prosper.
To learn more about the SBIC program, please visit nasbic.org.
The United States Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. The SBA recognizes that small business is critical to economic recovery and strength, to building America's future, and to helping the United States compete in today's global marketplace. Although the SBA has grown and evolved in the years since it was established in 1953, the bottom-line mission remains the same. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, the SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.
To learn more about the SBA's SBIC program, please visit sba.gov.
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