Industry Letters

Acting Superintendent McCaul Urges Banks to Help Develop and Support Child Care Programs

See related press release

September 18, 1998


As you are aware, late last year the Banking Department adopted a new Part 76 of the General Regulations of the Banking Board (Community Reinvestment Act requirements). The Department utilizes various performance tests to evaluate institutions' CRA activities pursuant to the new regulation, depending on whether the bank is a large, small or wholesale/limited purpose institution. Regardless of the performance test under which it is evaluated, an institution may receive positive consideration for making "community development loans", "qualified investments", or for providing "community development services".

Since CRA's adoption in the late 1970's, the banking industry has invested billions of community development dollars in projects and programs that create and preserve affordable housing in New York State's low and moderate income neighborhoods. Yet, while the need for investment in housing remains vast, many community development practitioners now believe that the viability and sustainability of a community depend greatly on the strength of its economic base, as well as access to employment, child care, education, and health care.

Like education and health care, child care is not only about the provision of services; it is also about creating jobs and providing opportunities for parents to enter or remain in the workforce. However, the barriers to developing, sustaining or building the capacity of child care programs are daunting, particularly in high-cost areas, where space is limited and very expensive; construction costs are high; equity is in short supply; reimbursement levels are inadequate; and many program operators lack the business skills necessary to secure the financing they need to build, maintain or expand a facility. Most of all, child care programs need a long-term, reliable source of capital to sustain their capacity to deliver services. While the banking industry cannot be expected to solve these problems on its own, many of these issues can be addressed through collaborative ventures that draw upon the resources of many sectors, including lending institutions. The Department strongly encourages the expansion of these efforts.

In this context, we are taking this opportunity to offer recommendations for institutions that are seeking to integrate support for child-care into their CRA programs. The guiding philosophy behind these ideas, is that a more focused approach may prove to be far more effective than the practice of scattering small amounts of short-term funding across many different programs. To the extent that a bank's activities meet the definition of community development, an institution would receive favorable consideration for its support in a CRA Performance Evaluation. Moreover, if appropriate, the institution would be recognized for the innovativeness, complexity and responsiveness to community needs, of its activities, and in the case of qualified investments, the degree to which they are not routinely provided by private investors.

The "Adopt-a Center" approach:

The "Adopt-a-Center" strategy reflects a comprehensive partnership approach to local investment. While the emphasis is on providing multi-year capital or operating funds, the institution effectively blends a variety of financial, technical and human resources to build a single center's capacity to deliver services. The impact of this approach can often be greater than the sum of its parts, particularly when a bank's investment is designed to leverage additional funding from other sources (i.e., matching programs). This strategy might include a combination of:

  • Capital grants or recoverable loans to build equity
  • Multi-year operating grants
  • Loans for facilities expansion or working capital
  • Technical assistance on financial matters, including board representation, loaned executives, accounting or fundraising
  • In-kind donations of space, equipment, computers, etc.
  • Financial services education for program employees and customers’ families
  • Specialized retail banking services for program employees and customers’ families
  • Staff volunteer efforts

The pooled resources approach:

Rather than focus directly on a single provider, some institutions prefer to work with intermediaries that understand the business of child care and can spread the risk of an investment. These organizations typically pool money from various sources for the purpose of providing financing and technical support to child care programs. The Department strongly encourages banks and intermediaries to continue their efforts to collaborate on developing new approaches for financing facilities; making capital financing more predictable and efficient and strengthening child care as a business by providing technical support and financial management training for providers. Potential strategies include:

  • A collaborative grant funding initiative
  • A consortium approach to lending for facilities development or working capital
  • An equity pool that can be used to buy down credit or as a credit enhancement (i.e. loan guarantee fund, mortgage insurance, loan loss reserve)
  • A technical assistance pool for child care providers
  • A financial services education consortium targeting child care employees and customers' families.

Please note that this is not intended to be an exclusive list. The Banking Department anticipates further developments in this area, and would like to be kept abreast of innovations, as they evolve.

Please feel free to contact Gail Bernstein-Gold, Director, Community Affairs Unit, at (212) 618-6477, with any questions or comments you may have.


Elizabeth McCaul
Acting Superintendent of Banks