emergency capital investment program

The Emergency Capital Investment Program (ECIP) was established by the Consolidated Appropriations Act of 2021. Congress passed it, and it was signed into law, to help low-income and moderate-income community financial institutions make loans to small businesses and consumers and to support affordable housing efforts. Its ultimate purpose was to reduce wealth disparity, a significant and growing issue across the country.

The ECIP made it possible for the United States Department of the Treasury to provide up to $9 billion to Community Development Financial Institutions (CDFIs) or Minority Depository Institutions (MDIs). These community banks can use the money for loans, grants, and forbearances to small and minority-owned businesses and individuals in underserved communities impacted by the COVID-19 pandemic. 

Of the total $9 billion, $2 billion was set aside for CDFIs and MDIs with less than $500 million in assets. Another $2 billion was earmarked for CDFIs and MDIs with less than $2 billion in assets.

A March 8, 2022, report about an audit of the ECIP by the Treasury Office of the Inspector General found that the Treasury Department did a reasonable job implementing the program but missed the statutory deadline for distributing funds by more than a month. Another issue: Distribution of funds was not widespread, across the U.S. as intended. Instead, it was concentrated in just a few locations.

Because of these issues, on December 2, 2022, The U.S. Department of the Treasury announced it opened a second application round for investment in qualified financial institutions through ECIP. Approximately $160 million to $340 million in ECIP funding will be available for investment in the second round. The application deadline for this funding round is January 31, 2023. 

Treasury plans to prioritize applicants that:

  • Were ineligible to apply in the first funding round but are now eligible to participate in ECIP.
  • Serve geographical areas that received little funding in the first round (much of that investment was made in organizations in the south and southeastern United States, resulting in complaints from funders in other parts of the country.)
  • Demonstrate a solid track record of executing the ECIP plan, especially being able to prove a pattern of lending to low- and moderate-income or minority individuals.

Among the applicants the Treasury Department is prioritizing are institutions known to be highly responsive to community needs.

This article explains everything community lenders need to know about the ECIP program.

What types of organizations are eligible for ECIP?

As I’ve already covered, an organization must be a certified community development financial institution or a minority depository institution to be eligible for the original ECIP and the recent extension of it. In addition, it must be:

Financial institutions that are not federally insured are not allowed to participate in the ECIP, including:

  • CDFIs that are not banking institutions
  • Cooperatives based in Puerto Rico
  • Privately insured credit unions.

How to Qualify for ECIP

Applicants must apply for the ECIP extension online by the end of the day, January 31, 2023.

Officials at the Treasury Department evaluate applications to determine capital funding eligibility. As part of the ECIP application process, financial services organizations must prepare and submit an Emergency Investment Lending Plan that:

  • Demonstrates that 30 percent or more of the organization’s lending over the previous two fiscal years went directly to low-to-moderate income (LMI) borrowers, others targeted by the program, or a combination of the two.
  • Explains how the organization plans to address community development needs.
  • Outlines how the organization will conduct community outreach and communicate about the lending opportunity through different channels like LinkedIn, press releases sent to local media, educational webinars, and more.
  • Explains how it plans to follow the requirements related to preferred stock and other financial instruments issued in Section 104A(b) of the Community Development Banking and Financial Institutions Act of 1994.

Limits to ECIP participation

Any organization that has a beneficial owner who is a government official that directly or indirectly owns a 20 percent or larger share is not eligible for an ECIP investment.

Under ECIP, participating community financial institutions can only issue financial instruments to Treasury with an aggregate principal amount not greater than $250,000,000.

Financial instruments are limited to not greater than 7.5 percent of total assets for organizations with assets greater than $2,000,000,000. The limit cannot be greater than 15 percent of total assets for organizations with assets between $500,000,000 and $2,000,000,000. The limit is not more than 22.5 percent of total assets for any institution with assets of less than $500,000,000. In short, smaller organizations can get a higher percentage of their total assets in investment from ECIP than larger ones. ECIP is genuinely a program made for small financial institutions.

Across program investments, Treasury can make not less than $4,000,000,000 available for eligible organizations with total assets up to $2,000,000,000 if they apply on time and are approved to receive a capital investment under the program. Treasury can make not less than $2,000,000,000 available for organizations with total assets of less than $500,000,000 that apply on time to receive a capital investment through the program and are approved. 

The program was expected to end six months after the President declared an end to the COVID-19 national emergency.

The ECIP to date 

Even after ECIP was closed to new applications on September 1, 2021, the program continued to distribute funds based on guidelines included in the Consolidated Appropriations Act, 2021. A March 8, 2022, Treasury Office of the Inspector General audit of the program found that officials moved quickly to establish the program but did not begin accepting applications until March 4, 2021, well after the January 26 statutory deadline. As of December 14, 2021, 186 financial institutions, mostly concentrated in persistent poverty counties in the southern U.S. had been approved for ECIP investments totaling $8.7 billion. Because of the complaints about the disparities of the program, it’s being reopened for a short time so more organizations can qualify for the investments.

ECIP: The bottom line

The $8.75 billion program is both a relatively small and large initiative. It’s small relative to other government programs, such as the CHIPS Act, which provided almost $380 billion to support the U.S. semiconductor industry. Or the $800 billion Paycheck Protection Program (PPP), which provided loans that we’re forgiven to small business owners. However, ECIP can be viewed as large, as well. Many banks must maintain a ten percent reserve requirement. The $8.7 billion in fresh capital could result in almost $90 billion in new lending to minority communities and others that really need it.

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