Congressional Research Service IN11565.1 (Consolidated Appropriations Act, 2021 (P.L. 116-260): Emergency Capital Investment Program)

Summary

A Congressional Research Service product, IN11565 (version 1), dated January 5, 2021, on the Emergency Capital Investment Program (ECIP) in the Consolidated Appropriations Act, 2021 (P.L. 116-260). It explains that Division N, Title V, Section 522 of the act establishes the ECIP, through which the Treasury Department can make capital investments in certain depositories, meaning banks, savings associations and credit unions. It states that the program's purpose is to increase the availability of credit, grants and forbearances to groups disproportionately affected by the pandemic, citing studies that low- and moderate-income communities and minorities have borne a disproportionate share of the economic hardship. It notes similarities with earlier Treasury capital investment programs.

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INSIGHTi

Consolidated Appropriations Act, 2021 (P.L.
116-260): Emergency Capital Investment
Program

January 5, 2021
The Coronavirus Disease 2019 (COVID-19) pandemic has had devastating economic effects, including a
significant increase in unemployment. Certain studies indicate that low- and moderate-income
communities and minorities have borne this economic hardship to a disproportionately high degree, such
as by being more likely to experience job loss and difficulty paying for necessities. Division N, Title V,
Section 522, of Consolidated Appropriations Act, 2021 (P.L. 116-260), establishes the Emergency Capital
Investment Program (ECIP) through which the Treasury Department can make capital investments in
certain depositories (i.e., banks, savings associations, and credit unions). The purpose of the program is to
increase the availability of credit, grants, and forbearances to groups disproportionately affected by the
pandemic. The program shares certain similarities with previous Treasury capital investment programs.

Emergency Capital Investment Program
Section 522 allows Treasury to make investments in eligible institutions to support their efforts to
“provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers,
especially in low-income and underserved communities … that may be disproportionately impacted by
the economic effects of the COVID-19 pandemic.” Total investments cannot exceed $9 billion; $4 billion
is set aside for institutions with less than $2 billion in assets, of which $2 billion is set aside for
institutions with less than $500 million. Eligible institutions include depositories that are either (1)
minority depository institutions (i.e., 51% or more owned by individuals who are minorities) or (2) a
Community Development Financial Institution (CDFI). CDFIs are entities, some of which are not
depositories, certified to receive grants and other assistance from the CDFI Fund established by the Riegle
Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325) because their
business plans include a focus on fostering economic development in target neighborhoods or groups.

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IN11565

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Under ECIP, eligible institutions must submit applications to participate, including information about how
the investments will be used meet the needs of communities disproportionately affected by the pandemic.
The Treasury will purchase capital (e.g., preferred stock or a similar financial instrument) issued by
approved institutions. If an institution does not repay the investment by the end of a 10-year period, the
Treasury can reset the terms.
No dividend will be due within the first two years of the stock issuance. Then, the dividend rate will be
based on how much the institution’s lending to certain groups has grown relative to the size of the
investment in a way that provides incentives for lending to those groups. Institutions that have increased
lending to minority, rural, and urban low-income and underserved communities and to low- and
moderate-income borrowers by more than 400% of the investment amount will pay a 0.5% annual rate.
Institutions with lending growth to those groups of between 200% and 400% of the investment will pay
1.25%. Institutions that do not achieve those growth rates will pay 2%.
The most Treasury can invest in one bank is limited to $250 million, and the size of the capital investment
is limited to a percentage of a bank total assets, ranging from 7.5% of total assets for institutions with
more than $2 billion in assets to 22.5% for institutions with less than $500 million.
The Treasury has discretion to set terms and conditions and implement regulations to ensure that program
goals are met, provide incentives for repayment, protect against conflicts of interest, and protect the
interest of the federal government, among other goals. The Treasury faces certain restrictions on the sale
of the instruments to third parties. The authority to make investments under the ECIP expires six months
after the termination date for the national emergency declared by the President on March 13, 2020, under
the National Emergencies Act (P.L. 94-412).

Previous Capital Investment Programs
Troubled Asset Relief Program
Though the cause of the economic contractions are different, the magnitude of the current recession draws
comparisons to the recession caused by the 2007-2009 financial crisis. That crisis and its economic fallout
elicited major government interventions, including programs in which the Treasury made capital
investments in banks.
The Treasury established the Troubled Asset Relief Program (see CRS Report R41427, Troubled Asset
Relief Program (TARP): Implementation and Status) pursuant to the Emergency Economic Stabilization
Act of 2008 (P.L. 110-343), which included five bank investment programs. One program, the Capital
Purchase Program (CPP), made nearly $205 billion of investments in 707 financial institutions that were
deemed “viable”—that is, solvent and not in immediate danger of failing—with the goal of bolstering
their capital positions, boosting confidence in the banking system, and supporting lending to consumers
and businesses. Another program, the Community Development Capital Initiative (CDCI), made capital
investments in viable depositories that were CDFIs on more favorable terms than those of the CPP. The
CDCI made $570 million of investments in 84 institutions. As of December 2020, the Treasury had
received repayments, dividends, and sales worth $226 billion from CPP investments and $590 million
from CDCI investments.

Small Business Lending Fund
To support employment and small businesses after the 2007-2009 recession, Congress passed the Small
Business Jobs Act of 2010 (SBJA; P.L. 111-240). Section 4103 of the SBJA established another capital
investment program called the Small Business Lending Fund (SBLF; see CRS Report R42045, The Small

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Business Lending Fund). The act authorized the Treasury to invest up to $30 billion through the SBLF in
small banks and Community Development Loan Funds (CDLFs), a type of nondepository CDFI.
Ultimately, the Treasury invested over $4.0 billion in 332 institutions: $3.9 billion in 281 community
banks and $104 million in 51 CDLFs.
The SBJA required that participating banks pay a 5% dividend for the first two years of SBLF investment
and reduced that dividend in subsequent years if the bank had increased its small business lending by
certain amounts. For example, if the bank increased its business lending by 2.5% to 5%, it would pay a
4% dividend. The dividend could be set as low as 1% if the increase in small business lending was greater
than 10%. This feature of setting a dividend rate based on how much a bank lent to a particular market
segment is similar to the dividend feature in the ECIP.

Author Information

David W. Perkins
Specialist in Macroeconomic Policy

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