How does the Emergency Capital Investment Program (ECIP) work?

Emergency Capital Investment Program (ECIP) was established by Consolidated Appropriations Act 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 aim was to reduce wealth inequality, which is a significant and growing issue across the country.

ECIP has made it possible for the United States Department of the Treasury to provide up to $9 billion Community Development Financial Institution (CDFI) either Minority Depository Institution (MDI), These community banks can use the money to make loans, grants and forbearance to small and minority-owned businesses and individuals in underserved communities affected 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. $2 billion was set for CDFIs and MDIs with less than $2 billion in assets.

A report about March 8, 2022 Audit of 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 disbursing the funds by more than a month. Another issue: the distribution of wealth was not as wide across America as was intended. Instead, it was concentrated in a few places.

Because of these issues, on December 2, 2022, the US Treasury Department announced that it had second application round For investment in eligible financial institutions through ECIP. Approximately $160 million to $340 million of 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 who:

  • Were ineligible to apply in the first funding round but are now eligible to participate in ECIP.
  • Serve geographic areas that received little funding in earlier rounds (Most of those investments were 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 an ECIP plan, especially being able to prove a pattern of lending to low- and middle-income or minority individuals.

The Treasury Department is known to be highly sensitive to the needs of the community that it is prioritizing among applicants.

This article explains what 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 its recent expansions. In addition, it should be:

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

  • CDFIs that are not banking institutions
  • Cooperative Societies Located in Puerto Rico
  • Privately Insured Credit Union.

How to qualify for ECIP

Applicants have to apply online for ECIP extension by the end of January 31, 2023.

Treasury Department officials evaluate applications to determine capital funding eligibility. As part of the ECIP application process, financial services organizations must prepare and submit an emergency investment credit plan that:

  • Demonstrate that 30 percent or more of the organization’s lending in the past 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 meet community development needs.
  • It outlines how the organization will conduct community outreach and communicate about the lending opportunity through various channels such as LinkedIn, press releases sent to local media, educational webinars, and more.
  • Describes how it plans to comply with requirements relating to preferred stock and other financial instruments issued Section 104A(b) of the Community Development Banking and Financial Institutions Act of 1994.,

ECIP Participation Limitations

Any organization that has a beneficial owner who is a government official who directly or indirectly owns 20 percent or more of its shares is not eligible for ECIP investment.

Under ECIP, participating community financial institutions may only issue financial instruments to the Treasury with aggregate principal amounts not exceeding $250,000,000.

For organizations with more than $2,000,000,000 in assets, financial instruments are limited to no more than 7.5 percent of total assets. For organizations with assets between $500,000,000 and $2,000,000,000, this limit cannot exceed 15 percent of total assets. For an institution with less than $500,000,000 in assets, this limit does not exceed 22.5 percent of total assets. In short, smaller organizations can receive a higher percentage of their total assets in investments from the ECIP than larger organizations. ECIP is really a program designed for small financial institutions.

Of all investments in the program, Treasury may make available no less than $4,000,000,000 to eligible organizations with net assets of up to $2,000,000,000 if they timely apply and are approved to receive capital investments under the program. Treasury may make available no less than $2,000,000,000 to organizations with net assets of less than $500,000,000 that apply and are approved in a timely manner to receive capital investments through the program.

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

up to date ECIP

Even after ECIP was closed to new applications on September 1, 2021, the program continued to distribute funds based on guidelines contained in the Consolidated Appropriations Act of 2021. A March 8, 2022 Treasury Office of 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, after the January 26 statutory deadline. As of December 14, 2021, 186 financial institutions, mostly concentrated in countries with persistent poverty in South America, have been approved for ECIP investments totaling $8.7 billion. Due to complaints about the inequities of the program, it is being reopened for a short time so that more organizations can qualify for investment.

ECIP: The Bottom Line

The $8.75 billion program is both a small and a large initiative. This is small compared to other government programs, such as the CHIPS Act, which provides approximately $380 billion To support the US semiconductor industry. or $800 billion Paycheck Protection Program (PPP), which provided loans that we have forgiven to small business owners. However, ECIP can also be viewed in a larger way. Many banks must maintain the ten percent reserve requirement. The $8.7 billion in new capital could result in nearly $90 billion in new lending to minority communities and others who really need it.

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