Pub. 6 2016 Issue 3

F O R MANY, THE INVESTMENT TEST COMPONENT OF THE CRA (COMMUNITY REINVESTMENT ACT) EXAM CAN BE ANALOGOUS TO “FINDING A NEEDLE IN A HAYSTACK” GIVEN THE REQUIREMENTS FOR SECURITIES TO BE considered qualified CRA investments. Within this article, we will explore the criteria for investment eligibility, the nu- ances of determining the eligibility of specific security types, and some frequently asked questions we have received from clients on this topic. The investment test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank's as- sessment area(s). 1 Activities categorized under the lending or service tests may not be considered under the investment test with the opposite holding true as well. 2 Performance Criteria: • The dollar amount of qualified investments* • The innovativeness or complexity of qualified invest- ments • The responsiveness of qualified investments to credit and community development needs • The degree to which the qualified investments are not routinely provided by private investors *Note the key difference here in contrast to the lending test, which considers the origination and purchases of loans. The investment test is on the balance of investments, not the level of activity (purchases/sales of CRA investments) within the investment portfolio. In determining whether a particular investment is primar- ily for the purpose of promoting community development, the institution should consider whether the investment provides affordable housing for low- to moderate-income (LMI) individuals, provides community services targeted to LMI individuals, funds activities that promote economic develop- ment, and/or funds activities that revitalize or stabilize LMI areas and/or underserved or distressed areas. 4 The CRA Investment Test Thoughts on Qualified Investments 13 ISSUE 3. 2016 CRA w Continued on page 14 By WILL LANKFORD, DIRECTOR, AND WILL RICHENS, VICE PRESIDENT, STIFEL FIXED INCOME STRATEGY GROUP