Magazine article American Banker

Rating System in the Works for CRA Vehicles

Magazine article American Banker

Rating System in the Works for CRA Vehicles

Article excerpt

Hoping to encourage more investment from banks, some Community Development Financial Institutions have decided to take part in a new rating system.

Many banks, to meet Community Reinvestment Act obligations, already invest in the more than 600 credit unions, loan funds, venture capital funds, and banks that invest in underserved communities. But many do not, partly because it is difficult to assess the risk involved. The new ratings are expected to eliminate much of that guesswork.

"The ratings system will benefit CDFIs by making the capital-raising process more efficient," said Ruth Salzman, a senior vice president of community development at J.P. Morgan Chase & Co.

J.P. Morgan Chase is an active investor in community development financial institutions. But Mark Pinsky of the National Community Capital Association, a Philadelphia nonprofit that funnels investments and provides support to Community Development Financial Institutions, said that other banks and investors are often hesitant to invest because they cannot get a good grasp of the risk involved or what their return would be.

"There are many investors I know who want to invest in community development products but say there is not enough transparency and the exchange cost is took great," said Mr. Pinsky, National Community's president and chief executive.

National Community developed the new rating system with help from Morgan Chase and other large banking companies. The institutions would get one of six ratings -- A, A-plus, B, B-plus, C, and C-plus -- on the basis of their community contributions, finances, and management. …

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