Created in 2010, CDCI was one of the later TARP programs and was intended to help mitigate the adverse impact that the financial crisis was having on communities underserved by traditional banks. CDCI is structured much like the TARP Capital Purchase Program (CPP), in that both provide capital to financial institutions by purchasing preferred equity and subordinated debt from them. However, CDCI differs from CPP in several important ways. First, CDCI provided financial assistance only to CDFIs, which provide financial services to low‐ and moderate‐income, minority, and other underserved communities. Second, CDCI also provided assistance to credit unions, unlike CPP, which provided capital only to banks. Finally, CDCI provided more favorable capital terms to its participants than CPP did. Specifically, CDCI investments have an initial dividend or interest rate of 2 percent, compared with 5 percent under CPP. The dividend or interest rate increases to 9 percent after eight years under CDCI, compared with five years under CPP. Treasury finalized the last of its $570 million in CDCI investments in September 2010, just prior to the expiration of its TARP purchasing authority. The 84 participating institutions included 36 banks and 48 credit unions. Twenty-eight of the 36 banks were former CPP participants that were in good standing in that program and thus were allowed to refinance their CPP shares for a lower rate in CDCI. Of these 28 banks, 10 received additional disbursements under CDCI. As shown in table 1, CDCI terms varied depending on the type of institution receiving the capital. In general, banks received capital by issuing to Treasury preferred stock representing not more than 5 percent of their risk-weighted assets. The capital they received in return was generally treated as tier 1 capital for regulatory purposes, with a perpetual term. Federal banking regulators classify capital as either tier 1—currently the highest-quality form of capital—or tier 2, which is weaker in absorbing losses. Credit unions issued unsecured subordinated debentures totaling not more than 3.5 percent of their total assets. In exchange, Treasury provided participating credit unions with secondary capital that boosted their net worth until 5 years before the maturity date, at which point it would begin amortizing at 20 percent per year. All institutions participating in CDCI are required to make quarterly dividend or interest payments to Treasury. After 8 years, the initial dividend or interest rate of 2 percent increases to 9 percent. As of April 30, 2014, 68 of the original 84 CDCI institutions remained in the program. Fifteen institutions (six banks and nine credit unions) had exited through repayment, while one institution had exited as a result of its subsidiary bank’s failure. Three of the banks and at least one of the credit unions that had exited the program did so when they merged with or were acquired by institutions that were not certified CDFIs. CDCI terms required them to repay their investments, as non-CDFIs were not eligible for the program. Two of the 68 remaining institutions had begun to repay the principal on the investments they had received, while the other remaining institutions had paid only dividends and interest. Repayments and income from dividends and interest to date have amounted to less than a quarter of Treasury’s $570.1 million investment in 2010 (see fig. 1). As of April 30, 2014, the outstanding investment balance for CDCI was $467.4 million, reflecting repayments and write-offs totaling $102.7 million. Specifically, as of this date, Treasury had received approximately $96.0 million in principal repayments from CDCI recipients. As a result of the failure of Premier Bancorp, Inc.’s subsidiary, in January 2013 Treasury wrote off nearly all of its $6.8 million investment in Premier, whose assets were liquidated when its banking subsidiary entered receivership. Treasury also did not collect more than $300,000 in unpaid dividends and interest for Premier. CDCI participants have also paid $38.3 million in dividends and interest. Treasury has lowered its estimates of the program’s lifetime cost over the last 2 years as market conditions have improved and institutions have begun to repay their investments. As of November 2010, Treasury estimated the program’s lifetime cost at about $290 million. As of February 28, 2014, Treasury estimated the program’s lifetime cost at $80 million. According to representatives from the remaining CDCI institutions we spoke to, factors such as access to capital, the benefits of CDCI capital, and CDCI program terms affected participants’ decisions to remain in or exit the program. Specifically, we interviewed a nonprobability sample of 8 banks and 9 credit unions remaining in the program as well as organizations representing the banks and credit unions participating in CDCI. Representatives of CDCI participant institutions and bank and credit union organizations told us that a key factor in participants’ decision to remain in or exit CDCI was their ability to access other sources of capital. Representatives of a few of the CDCI institutions, as well as representatives of two organizations representing CDCIs, said that CDCI had been one of the few sources of external capital for small community banks and credit unions since the financial crisis and economic downturn. Representatives of the same organizations and a few other CDCI institutions explained that for many CDFI banks and credit unions, access to credit could be difficult and expensive. Some bank representatives said they were waiting to see whether the credit market improved closer to 2018 before making a decision on the timing of repayments. Some credit union representatives noted that they would pursue grants or nonmember deposits to replace the CDCI capital. One bank representative, as well as a bank organization representative and an investor in CDFIs, noted that the structure of the CDCI agreement gave Treasury priority status over other investors, making it difficult for these banks to attract additional investors and find replacement capital. This structure would be an issue if a bank was attempting to raise capital in smaller amounts than its CDCI capital, as the bank would have to balance the interests of both Treasury and new investors. Representatives from CDCI institutions we interviewed also mentioned several benefits of maintaining their CDCI capital. First, they stated that CDCI had allowed them to meet customer demand and provide access to services they would otherwise not have been able to provide. For example, three bank representatives we interviewed said the CDCI capital allowed them to purchase bank branches that were struggling or closing in underserved communities. They said that these purchases allowed them to ensure that residents of these communities had access to financial services. Several representatives noted that the CDCI capital allowed them to increase their lending. According to a representative of one credit union, the capital helped fund a loan so that a grocery store in a neighborhood that had previously lacked one could be built. Two bank representatives and a credit union representative also noted that the capital had allowed them to make residential mortgage loans. As one of the representatives noted, other financial institutions were decreasing this type of lending during the financial crisis and economic downturn. Second, several representatives we interviewed noted that the 2 percent rate on the CDCI capital was lower than the rates they could obtain in private capital markets. Therefore, regardless of their current capacity to fully repay Treasury, they planned to keep the capital as long as it remained less expensive than alternative capital. Finally, regulations reflecting Basel III regulatory capital reforms that are scheduled to take effect in 2015 will increase the percentage of capital that banks must hold. Three bank representatives noted that the increased capital requirements would make them more likely to hold their CDCI capital. Representatives from bank and credit union organizations and participating institutions also told us that changing program terms would influence institutions’ decisions about exiting the program. The scheduled increase in the CDCI dividend rate (from 2 percent to 9 percent) that will take effect in 2018 is a key factor for institutions in deciding when to exit. Representatives from several CDCI institutions we interviewed told us that they would like to repay Treasury before the increase takes effect. However, a few of the representatives from remaining institutions who we interviewed were uncertain about their ability to find other sources of inexpensive capital before the increase in 2018. A representative of one of the bank organizations stated that a good number of remaining CDCI banks would likely struggle to pay dividends at the higher rate while maintaining services to their communities. In addition, we found that for credit unions, the treatment of CDCI funds as secondary capital may also affect repayment schedules. Credit unions with 2018 maturity dates on their CDCI securities (approximately half of the remaining credit unions, according to Treasury) have had to begin counting a portion of their capital as debt. Treasury representatives explained that as a result of this regulatory capital rule, it was likely that many of these institutions would pursue repayment before 2018. Three credit union representatives we interviewed whose CDCI securities had a maturity date of 2018 stated that they hoped to either increase their earnings or find alternative sources of secondary capital in time to replace the CDCI capital. Treasury officials stated that they had not yet determined an exit strategy for CDCI but were studying various alternatives and would need to consider the interests of participating institutions and taxpayers. The officials noted that CDCI differed from CPP because of the mission of the participating institutions, which focused on communities and populations lacking access to credit, banking, and other financial services. To date, Treasury has had a number of meetings with participating banks and with organizations representing the banks in the program and said that it was aware that these organizations were also looking at alternatives for the banks’ exit from CDCI. Treasury officials said that they had not yet held similar meetings with organizations representing credit unions but planned to do so. In addition, Treasury officials said that they would meet with the federal financial regulators to discuss options. Treasury officials added that any decision would need to balance the mission of CDCI with the need to protect the taxpayers’ investment.