Federal Reserve Board Chairman Ben Bernanke told the recent Global Financial Literacy Summit meeting in Washington that there needs to be “systemic changes to correct weaknesses that have emerged in the current CDFI model.”

In his June 17 speech, Bernanke detailed the challenges faced by community development financial institutions in the current economic climate.

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

Bernanke also advised CDFIs to continue their ongoing efforts to access institutional funding and the capital markets. He mentioned that certified CDFIs can become members of the Federal Home Loan Bank System and access its lower-cost funds, as permitted under recent legislation. Bernanke highlighted the virtues of such funding: It is reliable and can help CDFIs manage their balance sheets more efficiently and inexpensively.

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

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

–mmurphy@cutimes.com

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Fed's Bernanke Says Systemic Change Can Strengthen CDFIs

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