Interagency Q&A .22(d) – 1: Will equity and equity-type investments in a third party receive consideration under the lending test?

Compliance > Regulation BB - CRA
Q:  § __.22(d) – 1: Will equity and equity-type investments in a third party receive consideration under the lending test?
 
A:  If an institution has made an equity or equity-type investment in a third party, community development loans made by the third party may be considered under the lending test.  On the other hand, asset-backed and debt securities that do not represent an equity-type interest in a third party will not be considered under the lending test unless the securities are booked by the purchasing institution as a loan.  For example, if an institution purchases stock in a CDC that primarily lends in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development, the institution may claim a pro rata share of the CDC’s loans as community development loans.  The institution’s pro rata share is based on its percentage of equity ownership in the CDC.  Q&A § __.23(b) – 1 provides information concerning consideration of an equity or equity-type investment under the investment test and both the lending and investment tests.  (Note that in connection with an intermediate small institution’s CRA performance evaluation, community development loans, including pro rata shares of community development loans, are considered only in the community development test.)
 
 
 
This Interagency Q&A, and others, was released in July 2016.  The 2016 Q&As consolidates and supersedes all previously published “Interagency Questions and Answers Regarding Community Reinvestment,” and were noted as being effective immediately.  They may be found here:  http://www.ffiec.gov/cra/qnadoc.htm
 
 

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