I would like to share my blog today with good friend and colleagues. Over the years I have had the pleasure to work with George P. Surgeon, Laurie J. Spengler, Darrin L. Williams, Radek Halamka, and Nathan Pittman. They are publishing today an interesting paper on raising equity for community development banks in the US. In their words:
Why have Community Development Financial Institutions (CDFIs) captured so many headlines these past few weeks? Because they are on the front-line responding to the economic repercussions of COVID-19 in disinvested communities across the country – communities that are out of reach by the big banks and out of sight to many. CDFIs were there providing responsible finance to these very communities before the global pandemic hit hard, and they will be there after the pandemic recedes. CDFIs demonstrate – then and now – the vital role of our local financial infrastructure to the health, stability and long-term viability of local communities. Perhaps their role has taken on even more relevance in the wake of COVID-19.
But to continue to play this vital role, CDFIs need greater levels of core equity capital – not only attractively priced debt – to leverage their balance sheets and make loans to small businesses, provide mortgages to families and meet the financing needs of the communities in which they live and operate.
Southern Bancorp commissioned this paper to trace the evolution and successful implementation of a new capital model Southern developed for community development banks, a subset of the CDFI universe. This new capital model allowed Southern to succeed in the largest capital campaign in its history. The new capital model has laid the groundwork for Southern and other community development banks to access the capital markets and raise larger amounts of core equity capital in the future.
As we face the urgent task of rebuilding local communities emerging from the Covid-19 crisis, this new model for equity investment in community development banks could not have come at a better time. We hope that sharing Southern’s experience will accelerate the capitalization of community banks and all CDFIs. The time to support these community first responders is now!
