Federal Reserve Board Chairman Ben Bernanke told the recentGlobal Financial Literacy Summit meeting in Washington that thereneeds to be “systemic changes to correct weaknesses that haveemerged in the current CDFI model.”

In his June 17 speech, Bernanke detailed the challenges faced bycommunity development financial institutions in the currenteconomic climate.

After noting that funding to CDFIs from philanthropic sources,state and local governments and mainstream financial institutionshas been reduced, Bernanke emphasized the importance of broadeningand diversifying the industry's funding base. He recommended thatcurrent efforts to attract new investors to the low-income housingtax credit market should be continued and expanded to lessen theoverreliance on a few investors.

Bernanke also advised CDFIs to continue their ongoing efforts toaccess institutional funding and the capital markets. He mentionedthat certified CDFIs can become members of the Federal Home LoanBank System and access its lower-cost funds, as permitted underrecent legislation. Bernanke highlighted the virtues of suchfunding: It is reliable and can help CDFIs manage their balancesheets more efficiently and inexpensively.

Bernanke listed some additional avenues that he believes “holdpromise,” including gaining access to secondary financing markets,cultivating nontraditional funding and using emerging peer-to-peerlending platforms. He also praised those CDFIs that are purchasingforeclosed homes, repairing them and then selling or renting themto families-a practice that Bernanke said can help maintainneighborhood stability.

He noted that although CDFIs are doing their best to retaintheir hard-won progress in low- and moderate-income communities,they will need the cooperation of governments, mortgage servicersand mainstream lenders to ensure long-term success. “Strongcommunity organizations can accomplish a great deal, but theircapacity will be severely limited without the willing partnershipof many other institutions,” he said.

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