(March 14, 2012 – New York, NY) A major new study by Federation President/CEO Cliff Rosenthal, entitled Credit Unions, Community Development Finance and the Great Recession, has been released by the Federal Reserve Bank of San Francisco as part of their Working Papers series.
The paper offers the most detailed history to date of the role of community development credit unions (CDCUs) within the Community Development Financial Institutions (CDFI) movement; shows how federal investments helped preserve and expand CDCU services during the Great Recession; and recommends ways to strengthen CDFI depository institutions of all types through best-practice models and innovative collaborations to increase impact.
In the study, Rosenthal introduces the broader credit union movement to the world of community development finance and identifies factors that have limited the recognition of credit unions within the CDFI field. One consequence of this limited recognition, he writes, is disproportionately low levels of financial and technical support for CDCUs and other depositories compared to non-regulated loan funds, which regularly claim 75-85% of direct assistance from the CDFI Fund.
By contrast, the Treasury Department’s Community Development Capital Initiative (CDCI) invested more in CDFI depositories in 2010 – the single year of its existence – than the CDFI Fund had invested over its entire 15 year history; CDCI placed nearly $570 million in secondary capital loans – equity-like subordinated debt – in CDFI banks and CDFI credit unions using funds from the $800 billion Troubled Assets Relief Program (TARP). CDCI was a vital source of capital at a critical moment; it allowed credit unions to strengthen their financials in order to grow more rapidly in communities that were hardest hit by the recession. Unfortunately, the CDCI program was vastly undersubscribed as many credit unions chose not to accept the investments due to burden of compliance with requirements designed for the largest financial institutions.
The paper shows how the damage wrought by the Great Recession on CDCUs was compounded by the crisis of the wholesale or “corporate” credit union network, which resulted in system-wide deposit-insurance premiums and other assessments that eroded credit union capital and profitability.
The paper underscores the unique and powerful resources available only through the CDFI Fund and makes specific recommendations to strengthen and expand the field of community development finance, including:
• Increased investment in CDFI depository institutions.
• Improved and expedited certification procedures for all CDFIs.
• Strategic investments to build the CDFI field, through new structures and platforms, such as hybrid structures that marry the complementary strengths of CDFI loan funds with CDFI credit unions.
The Federation co-founded the CDFI Coalition in the early 1990s, building on a concept paper that Rosenthal authored in the late 1980s calling for the creation of an institution like the CDFI Fund. The Federation is a permanent board member of the national CDFI Coalition and has long led the New York State CDFI Coalition, which has successfully advocated for a statewide program to invest in CDFIs of all types.
Through its CU Breakthrough service, the Federation provides comprehensive consulting services to credit unions seeking CDFI certification and resources.
The full report is available from the Federal Reserve Bank of San Francisco at: http://www.frbsf.org/publications/community/wpapers/, and is also available for download on this website by clicking here.
© 2012 National Federation of Community Development Credit Unions.