As “financial first responders,” community development financial institutions have the creativity and funding structures to assist low-income communities, but they face many challenges in today’s economic environment, Federal Reserve Governor Lisa Cook said today. Speaking at a CDFI event in New York City, Cook outlined some of the hurdles facing the institutions and ways the Fed is trying to alleviate those problems.
First, demand is outpacing the supply of capital. “While there has been an influx of federal funding for CDFIs, much of that is tied to pandemic-related relief programs and other programs with specific purposes,” she said. Second, the increasing cost of lending capital makes extending affordable credit to low- and moderate-income borrowers more difficult. Third, CDFIs are not immune to staff hiring and retention challenges or managing labor costs.
The Fed supports CDFIs through certain supervisory and regulatory activities, such as allowing banks to receive Community Reinvestment Act credit for undertaking community development activities in cooperation with CDFIs, Cook said. The Paycheck Protection Program Liquidity Facility created more opportunities for banks and CDFIs to leverage funding for communities affected by the pandemic, she added. In addition, the Fed clarified the capital treatment of funds made available through the Emergency Capital Investment Program and provided technical assistance throughout the application process.
