The Community Reinvestment Act (CRA) is a federal law enacted in 1977 to encourage banks and depository institutions to meet the credit needs of the communities in which they do business, including low- and moderate-income (LMI) neighborhoods. On the investment test, CRA credit typically requires investing in an institution’s nearby assessment area(s), but in areas hit by major disasters, CRA credit can be extended. Last year, after Hurricane Maria, federal banking officials extended CRA credit to financial institutions anywhere in the United States to include hurricane-stricken Puerto Rico.1 Eligibility for CRA credit in Puerto Rico is intended to increase capital flowing into communities as they try to rebuild.
While this sounds great on paper, Nancy Santiago Negron of Hispanics in Philanthropy explains that most banks don’t even know about the CRA eligibility in Puerto Rico.2
To help Puerto Rico, the Federal Reserve Bank of New York (the New York Fed) began a series of educational workshops on the island in May to educate potential recipients of these funds such as financial institutions and local organizations. Banks such as Citibank, Deutsche Bank, Banco Popular, and Oriental Bank are also participating in the New York Fed workshops. With banks and local organizations in attendance, the New York Fed hopes to train both sides on how to leverage the CRA to help revitalize communities after the hurricane. Chelsea Cruz, associate director of the Community Development Finance (CoDeFi) at the New York Fed said, “Organizations can propose projects to a bank that is required to comply with the CRA investments. Banks also seek out organizations to partner with CRA-eligible activities.” The CoDeFi initiative utilizes CRA compliance to increase community development investments that will help rebuild Puerto Rico. While banks normally have around 36 months after the official declaration of a disaster to make CRA investments in Puerto Rico, it’s possible for the time frame to be extended if more banks continue to invest in ways that satisfy communities’ needs, said Adrián Franco, New York Fed officer and director of the CoDeFi initiative.3
At CCM, we have invested in several bonds, on behalf of our banks for CRA credit and other clients, that are financing affordable multifamily properties in federally designated disaster areas in Puerto Rico. While altruistic efforts and aid are critical following disasters, they typically take place immediately following the destruction, whereas most recovery efforts can take years, if not decades. We are excited about the workshops that the Fed is hosting because it is these types of events that will spur more capital through CRA investments into the long-term recovery and support of Puerto Rico.