US Community Development Capital Initiative (CDCI)

Most of the funds invested through the CDCI program went to former CPP participants that exchanged their CPP capital for more affordable CDCI capital (Treasury 2012b). Furthermore, 10 CPP exchanges qualified for an additional round of investment beyond the original CPP investment, totaling $100.7 million (SIGTARP 2010c). The majority of participants in the CDCI program were credit unions that had not been eligible for CPP capital (GAO 2014). CDFIs run less lucrative business models than mainstream financial institutions and encounter difficulties in securing long-term, low-cost capital from private investors in a time of crisis (Barr 2010).

The CDCI copied the CPP’s architecture while softening key payment factors: the CDCI decreased initial interest/dividend rates from the CPP’s 5% to 2%, delayed the step-up clauses from the CPP’s five years (after the original investment) to eight years, omitted the requirement on stock warrants, and increased the maximum issuance of government capital from the CPP’s 3% of risk-weighted assets to 5% (GAO 2014).

Outside of TARP programs, the US Treasury also supported small businesses through the Small Business Jobs Act of 2010, which permitted Treasury to “make capital investments in eligible institutions in order to increase the availability of credit for small businesses, to amend the Internal Revenue Code of 1986 to provide tax incentives for small business job creation, and for other purposes” (SBJA 2010). Through this act, Treasury launched the State Small Business Credit Initiative (SSBCI) and provided nearly $1.5 billion to states, territories, and municipalities (CREC/CS 2016). Rather than directly injecting capital into financial institutions, Treasury supported state programs that fell into one of five categories: capital access programs, loan guarantee programs, collateral support programs, loan participation programs, and venture capital programs (CREC/CS 2016). The SSBCI funded small state programs, which filled in market gaps left by larger federal programs (CREC/CS 2016).

The CDFI Fund programs that followed the CDCI varied in their capital mechanisms, which included monetary awards, training programs, tax credits, grants, and bond guarantee programs (CDFI Fund, n.d.-b).^FUnder §1204 of Dodd-Frank, the secretary of Treasury was permitted to “establish a multiyear program of grants, cooperative agreements, financial agency agreements, and similar contracts or undertakings to promote initiatives designed: (1.) to enable low- and moderate-income individuals to establish one or more accounts in a federally insured depository institution that are appropriate to meet the financial needs of such individuals; and (2.) to improve access to the provision of accounts, on reasonable terms, for low- and moderate-income individuals” (Dodd-Frank 2010). 

The CDCI was legally authorized by the Emergency Economic Stabilization Act of 2008—specifically Title I: The Troubled Assets Relief Program (EESA 2008). The broad definition of “troubled assets” available for purchase could extend to unsecured subordinated debentures and preferred equity if the secretary of Treasury were to secure the approval of the chairman of the Federal Reserve Board (EESA 2008, sec. 3).

To communicate the CDCI, Treasury relied heavily on the Internet. Online documentation was robust, and Treasury website contained CDCI Program Documents, Program Agreements for all participating institutions, Frequently Asked Questions (FAQs) about how to participate, and other announcements (Treasury 2016a). The application guidelines webpage held hyperlinks to the websites of federal regulators, where the program details and an application portal were ultimately accessible (Treasury 2010a).^FFederal regulators, such as the Office of the Comptroller of the Currency, advertised the CDCI using the main policy details of Treasury’s first press release: CDFI requirements, individual participation limits, low- and fixed-rate dividends, conversion from CPP, and the absence of stock warrants (Treasury/OCC 2010). The narratives presented by regulators appeared consistent with one another. All of Treasury files were published in either PDF or Excel files. After the application window closed, Treasury announced the CDCI once more via press release on September 30, 2010 (Treasury 2010j).

The initial response to the announcement of CDCI was mixed because the stated goals of the CDCI were, at first, unclear. As “early public announcements and congressional testimony about the program emphasized that the goal of the program was to increase small business lending,” some prospective applicants expressed concern about the relevance of the CDCI to their operations (GAO 2011). For example, the National Credit Union Administration and officials from a credit union industry group stressed that their institutions did not make small business loans.^FIt is not clear whether credit union representatives interpreted the CDCI’s initial goal of “small business lending” as a prerequisite to receive CDCI funding or as a required condition upon receiving CDCI funding (GAO 2011).

Treasury relied on primary financial regulators for assistance through every step of the CDCI’s lifespan. First, Treasury-regulator relationship was beneficial for Treasury. During the initial application window, potential CDCI participants were required to apply to their regulators (Treasury 2010a). The primary regulators then curated these applicant pools, endorsing the best applicants and forwarding them to Treasury for review (Massad and Kashkari 2018). The combined staff of Treasury and the primary regulators sought to prescreen institutions for eligibility and viability quickly and fairly (Massad and Kashkari 2018).

The CDCI program also helped primary regulators by strengthening some of the institutions they regulated. In several instances, the CDCI capital prevented prompt corrective action from the primary regulators (BCFCU/Treasury 2012; CCFCU/Treasury 2010; CCFCU/Treasury 2011; NSCFCU/Treasury 2012).

Treasury–regulator relationship made it easier for CDFI depositories to decide whether to apply for funding. The regulators decided whether the CDCI was an appropriate program for the CDFI in question, so the CDFIs could not expend resources by assembling an application to Treasury (Treasury 2010a).

The status of the CDCI program as a whole was tracked and reported by both Treasury and the Government Accountability Office (GAO 2011). As part of the Emergency Economic Stability Act, the GAO had to report to Congress every 60 days on the progress of TARP programs (GAO 2011). Some of these reports described the ongoing status of the CDCI in fine detail (e.g., discussing the participants’ progress through the entire duration of the program). Other GAO reports were broad and tangentially discussed the CDCI as one of many capital programs. Detailed CDCI statistics (number of institutions repaid versus remaining, amount of Treasury capital outstanding, estimated lifetime cost to Treasury, etc.) were included in Treasury’s daily TARP updates in early 2011 and monthly reports to Congress after December 2010 (Treasury 2011a; Treasury 2011b).

The EESA established the Office of Special Inspector General for the Troubled Asset Relief Program for the purposes of auditing TARP programs (EESA 2008, sec. 121; SIGTARP n.d.). SIGTARP is a federal law enforcement agency that strives to “prevent fraud and abuse, identify wasteful spending, and drive improvements” (SIGTARP n.d.). SIGTARP’s quarterly reports contain financial data on the current status of Treasury’s outstanding investments, TARP-related crime, and SIGTARP’s ongoing recommendations for Treasury’s programs (SIGTARP 2014). These reports contain CDCI investment summaries, details of missed dividend payments, terms of senior securities and dividends, and a history of Treasury’s CDCI contract enforcement (SIGTARP 2014).

Treasury announced the CDCI on February 3, 2010, and on February 19, the National Credit Union Administration published several interim rule changes regarding secondary capital. The alterations were meant to harmonize NCUA regulations with CDCI terms and to head off regulatory barriers to participation faced by low-income credit unions. The new rules became effective September 23, 2010—one week before the CDCI’s funding/exchanges window closed. An industry associate remarked, “Without NCUA’s rapid and well-fashioned regulatory changes, CDCI would never have worked for credit unions” (Rosenthal 2012).

The first interim rule relaxed redemption schedule limits for secondary capital obtained through government programs (NCUA 2010). According to 12 CFR § 701.34(d)(3), LICUs could begin to redeem secondary capital (limited to 20% of the original balance) only when the secondary capital accounts had less than five years of maturity left (NCUA n.d.). The limit on redemption amount increased as the remaining maturity on the account decreased. However, CDCI injected capital with 13 years of maturity, and a step-up clause kicked in at the eighth year. Therefore, subsection (d)(3) would have prevented CDCI’s LICU participants from repaying Treasury until after the step-up clauses had kicked in. The NCUA’s new rule, 12 CFR § 701.34(d)(4), exempted LICUs receiving capital under CDCI from subsection (d)(3), allowing LICUs to repay the government (and any of the government’s co-investors) in any amount after the first two years of investment. Subsection (d)(4)’s general language also applied to future government programs (NCUA 2010).

The second interim rule altered loss distribution procedures for secondary capital accounts, allowing LICUs two methods to subordinate matching secondary capital to government capital provided under the CDCI (NCUA 2010). The purpose was to ensure that the government’s CDCI investment was senior to—and would absorb losses only after—all other secondary capital. This rule’s language was specific to CDCI and did not apply to other government programs.

The finalized interim rules also contained several technical adjustments. For secondary capital accounts with less than five years’ maturity, LICUs were required to report net asset value equal to the lesser of: “(1.) the remaining balance of the account after early redemption and losses; or (2.) the declining percentage calculations set forth in the net-worth schedule that are based on the original balance of the account” (NCUA n.d.). The NCUA included this accounting clarification to avoid a scenario in which LICUs that had partially redeemed CDCI capital could be forced to overstate the net-worth value of the corresponding secondary capital account (NCUA 2010).

The application window for the program was about three full months: February 3 through April 30, 2010 (Treasury 2012a). This window was short because the CDCI needed to be fully functional within TARP’s disbursement period; Treasury’s funding authority expired on October 3, 2010 (Treasury 2010i). Treasury established the application window with the knowledge that it had a few months (May through September 2010) for application review, funding, and exchanges (Treasury 2012a).

The CDCI was available to “banks, savings associations, bank holding companies, savings and loan companies (which engage in solely or predominantly in activities that are permitted for financial holding companies over relevant law), and federally insured low-income designated credit unions” (Treasury 2012a). The basic premise of the CDCI was a securities sale from a CDFI depository to Treasury, and the primary regulator facilitated the transaction at every step. The CDFI first discussed capital needs and the appropriateness of the CDCI with its primary regulator (Treasury 2010a). Then, the CDFI applied to its primary regulator (through the primary regulator’s website), which then decided whether to pass the CDFI’s application on to Treasury. Upon receiving applications, Treasury discussed the CDFI’s eligibility and viability with the primary regulator to either deny or accept the application. For state-regulated credit unions, eligibility and viability were decided jointly by state and federal regulators (Treasury 2012a).

All TARP applicants were evaluated comprehensively, and overall CDFI financial health was assessed by capital, assets, management, earnings, liquidity, and sensitivity to risk (so-called “CAMELS” ratings) (Massad and Kashkari 2018). Total application numbers for the CDCI are unknown.^FApplication numbers were reported by some—but not all—regulators. The FDIC reported that it received 64 TARP CDCI applications, forwarded 12 to Treasury, and ultimately enrolled 10 into the CDCI program (FDIC 2011). The Fed reported that 320 institutions applying to Treasury’s Small Business Lending Fund also applied to refinance TARP CPP and CDCI investments, yet 137 were ultimately approved for CPP/CDCI (BGFR 2012). The NCUA reported that 111 credit unions applied to the NCUA for CDCI funding (NCUA 2011). While it is a challenge to measure exact program take-up, the bottom line is that Treasury and other regulators denied many applications. If the CDFI depository agreed to Treasury’s terms and conditions (including Treasury authority consistent with other TARP legislation), a contract was drawn and signed to commence the sale. Treasury document language does not indicate that the CDFI applicant had room to negotiate funding after receiving preliminary acceptance (Treasury 2010a; Treasury 2012a). Thereafter, the CDFI depository had to comply with Treasury’s additional reporting requirements and financial restrictions, in addition to the rules issued by the primary regulator.

Several CDFI executives, lawyers, and industry insiders reported that the application process was challenging (Guggenheimer 2011). They stressed that TARP’s terms and conditions were designed for large banks, creating difficulties for CDFI depositories that lacked in-house lawyers or legal expertise (Rosenthal 2012). Consequently, dozens of applicants relied on pro bono support to apply to the program and comply with its terms after they were accepted (Guggenheimer 2011).

It is worth noting that Treasury never listed preconditions that would prohibit an institution from participating—other than failing to follow the terms outlined in the CDCI application and documentation. Within the press releases, public FAQ documents, application materials, and the summary of terms documents, Treasury did not address minimum/maximum size of balance sheets, the requirement of participation (once an application was accepted), questions of systemic importance, or any other conditions of ineligibility. 

In some cases, the primary regulator required CDCI recipients to raise capital from private markets before they were allowed to secure Treasury funding. As described by Treasury, the regulator could take into account junior private investor capital raised alongside CDCI capital—so long as the private capital was an amount at least equal to the CDCI funding (Treasury 2012a). If CDCI funding was contingent on a private capital raise, the amount of CDCI funding still could not exceed the CDCI program limits: matching private capital up to 5% of risk-weighted assets (3.5% for credit unions). More CDFI depositories became eligible for the program because the matching capital provision helped them reach a higher level of viability than what was possible by private capital or Treasury capital alone (Treasury 2010h). The private capital raised had to be junior to Treasury capital.

The terms of CDCI’s individual participation limits were similar across banks/thrifts, credit unions, S corporations, and mutual banks (Treasury 2010b). Generally, participants were required to secure private capital only when mandated by their primary regulator. The level of public investments via CDCI could not exceed the level of private co-investment, and private capital had to be subordinated to the government’s CDCI securities. If a CPP participants wished to exchange CPP capital for CDCI securities, it could do so only after paying off the dividends/interest from Treasury’s prior investment, and applicants could not have violated any of the CPP terms and conditions before participating the CDCI. The maximum investment amounts can be found in Figure 1.

Figure 1: Maximum CDCI Investment Amount by Type of CDFI Depository

Source: Treasury 2010b.

Banks or thrifts issued perpetual preferred stock shares (Treasury 2010b). For bank holding companies and savings and loan holding companies, the preferred stock was cumulative—meaning that the participating bank had to pay Treasury all dividends owed before paying dividends on any other securities. For banks and thrifts, the preferred stock was noncumulative. Dividends were fixed at a 2% rate until the eighth anniversary of the closing date of the investment and then stepped up to 9% thereafter (Treasury 2010b). Finally, for banks or thrifts, there were no contractual restrictions on transfers of the securities; Treasury reserved the right to sell or auction off these securities (Treasury 2010b).

Credit unions issued unsecured subordinated debentures (i.e., debt) with a maturity of either eight or 13 years from the date of the investment (Treasury 2010e). On the date of maturity, the credit union paid back the principal plus accrued and unpaid interest. This debt paid cumulative interest: 2% annually until the eighth anniversary of the closing date of the investment and 9% annually thereafter (including a 9% default rate on missed payments from years prior) (Treasury 2010e).

S corporations issued unsecured subordinated debentures with a maturity of either 13 years for a bank/savings association or 30 years for a bank or savings and loan holding company (Treasury 2010d). On the date of maturity, the S corporation paid back the principal plus accrued and unpaid interest. The CDCI debt issued by S corporations paid cumulative interest, fixed at a 3.1% interest rate until the eighth anniversary of the closing date of the investment and then 13.8% annually thereafter (Treasury 2010d). The higher rates made up for the fact that S corporations banks do not pay corporate taxes (GAO 2014). Assuming a 35% tax rate, these interest rates equated to 2% and 9%, respectively.

Mutual banks issued unsecured subordinated debentures with a maturity of 13 years from the date of investment (Treasury 2010j). On the date of maturity, the mutual bank paid back the principal plus accrued and unpaid interest. As mutual banks also do not pay corporate taxes, the rates on their debt mirrored the rates on the S corporation debt—3.1% rising to 13.8% after eight years (Treasury 2010j).

All interest payments were on a synchronized schedule (payments were made quarterly on February 15, May 15, August 15, and November 15 of each year—on the first business day on/after these dates) (Treasury 2010b).

Treasury did not mandate any call options on the debt or warrants on the shares due to the EESA’s de minimis exception, which gave Treasury the right to waive warrant requirements for institutions with Treasury investments of $100 million or less (SIGTARP 2010b).

If Treasury investment was still standing after eight years, the institution was prohibited from making common stock dividend payments or repurchases.^FWhen Treasury purchased preferred shares from banks or thrifts, questions arose regarding what to do about stock dilution for other shareholders. CDCI literature indicates that one of the acceptable scenarios in which a bank or thrift was able to repurchase its own shares was if/when CDCI participation diluted share prices and inadvertently reduced employee benefits as a result (Treasury 2010c). In this case, the CDFI bank/thrift was able to repurchase shares to offset (but not exceed) the share dilution amount—“consistent with past practice” (Treasury 2010c). For credit unions, no special dividends could be declared or paid on any share accounts or other capital instruments. Finally, the CDFI depository could not enter into any transactions with affiliates unless: (1) the transaction was no less favorable to the institution and its subsidiaries than could be obtained from an unaffiliated third party, or (2) the transaction was approved by the audit committee or a comparable body of independent directors of the CDFI (Treasury 2010b). In addition to the preliminary agreements, data privileges, and capital caveats, Treasury relied on independent evaluators to track the CDCI.

The step-up clauses associated with CDCI capital were fixed and transparent from the announcement of the program (GAO 2016a). This increase in dividend/interest rates was Treasury’s attempt to transition CDFI depositories from public to private funding after eight years (GAO 2016a). 

Any participating CDFI depository was required to “make representations and warranties described in various Treasury agreements” (Treasury 2010a). Among the conditions of participation in the CDCI was the requirement that “the applicant (and its covered officers and employees) agree to comply with the rules, regulations, and guidance of Treasury with respect to executive compensation, transparency, accountability and monitoring, as published and in effect at the time of the investment closing” (Treasury 2010a).

In the publicly available “summary of terms” documents, Treasury let applicants know what data the CDFI depositories were expected to report after receiving CDCI funds (Treasury 2010b). As long as Treasury held at least 10% of its initial investment, the CDFI depository had to allow Treasury (along with Treasury’s affiliates) to manage, evaluate, or transfer Treasury’s investment. Treasury also had the right to examine and make copies of the CDFI’s corporate books, and to discuss the affairs, finances, and accounts with the CDFI’s principal officers (Treasury 2010b).

Treasury reserved the right to request and access the information through the institution’s federal regulator. While Treasury funds were outstanding, the CDFI depository had to deliver an audited consolidated balance sheet of the fiscal year, and audited consolidated statements of income, retained earnings, and cash flows (prepared with generally accepted accounting principles, or in comparative form from the previous fiscal year) (Treasury 2010b). The CDFI depository was also required to deliver copies of any quarterly reports given to equity/debt holders. If the CDFI depository was ever audited or received an assessment on its internal controls, a copy of the assessment had to be delivered to Treasury as well.

Finally, the CDFI depository had to complete an annual survey that detailed how it utilized the capital as well as the effects of the capital on its operations and status—this was known as a “capital survey” (Treasury 2010b). Though there was no language about stress tests or triage within CDCI documents, all TARP participants were expected to maintain “good standing” as part of Treasury’s ongoing evaluation of CDCI participants.^F“Good standing” refers to “material compliance with all the terms, conditions, and covenants of any TARP financial instrument, but not limited to, executive compensation requirements, reporting requirements, and payment of dividends or interest” (Treasury 2010a).

With the exception of credit union capital, the CDCI capital terms required CDCI capital to maintain seniority over comparable securities issued by the CDFI depository. This prioritized the repayment of taxpayer dollars amongst other stakeholders.

Banks or thrifts issued preferred shares that were senior to common stock and pari passu (the same ranking) with existing or future authorized and issued preferred shares, and senior to preferred shares which (by their terms) ranked junior to any existing or future authorized and issued preferred shares (Treasury 2010b).

Credit unions issued unsecured subordinated debentures that constituted secondary capital accounts rather than equity ownership (Treasury 2010e). Credit unions are mutual organizations whose members are shareholder-depositors (Fay n.d.). As such, they do not have common equity investors comparable to those in commercial banks. For credit unions, secondary capital accounts are analogous to common stock, and subordinated debt is a form of secondary capital (GAO 2014). As secondary capital accounts, the CDCI credit union debt was subordinated to all other claims against the credit union, including those of creditors, shareholders, and the National Credit Union Share Insurance Fund (Treasury 2010e). The CDCI credit union debt was not subject to restoration or replenishment under any circumstances, and it was available to cover operating losses (that exceeded net available reserves) realized by the credit union (Treasury 2010e).

S corporation debt ranked senior to the S corporation’s common stock (and any other class of equity permitted to the institution by law) (Treasury 2010d). The S corporations subordinated CDCI debt to: (1) claims of depositors and other debt obligations to general and secured creditors (if the S corporation was a bank or savings association), or (2) senior debt (if the S corporation was a bank or savings and loan holding company).

Mutual bank debt ranked senior to mutual capital certificates and other capital instruments authorized under state law (Treasury 2010j). A mutual bank’s debt could be subordinated to claims of depositors and to the mutual bank’s other debt obligations to its general and secured creditors, unless these obligations were made explicitly pari passu or subordinate to the CDCI securities. 

Participating CDFI depositories with company sizes of one to 25 employees could not distribute bonuses, depending on the size of the TARP assistance package—with exceptions for grandfathered bonuses. Stock bonuses could only be paid out in 25% increments alongside the repayment of TARP funds (Treasury 2010g). There were to be no golden parachutes for the senior executives (or five most highly compensated employees after them) if there were still TARP funds outstanding. Senior executive bonuses (and those of the next 20 highest paid employees) could be subject to clawback if it was discovered that these bonuses were based on inaccurate metrics. Tax gross-ups could not be paid to the senior executives (or the next 20 most highly compensated employees). The board had to adopt an excessive or luxury expenditures policy and post the policy on the institution’s website. The board also had to create a compensation committee of independent directors who reviewed and evaluated compensation plans twice per year to insulate the institution from unnecessary risks, and this committee had to file annual certifications and disclosures. The chief executive officer and chief financial officer had to file annual certifications covering compliance with the executive compensation and corporate governance requirements. If the institution had securities registered with the US Securities and Exchange Commission, then shareholders had to be provided with an annual advisory vote on executive compensation (“say on pay”).

The CDCI securities were all issued with nonvoting rights. For banks, thrifts, and mutual banks, the exceptions to the nonvoting rights were class voting rights on: (1) any authorization or issuance of capital shares ranking senior to the CDCI preferred stock, (2) any amendment to the rights of CDCI preferred stock, or (3) any merger/exchange/dissolution/transaction that would adversely affect the rights of the CDCI preferred stock (Treasury 2010b).

In the event of excessive nonrepayment (any dividend/interest not paid in full for eight periods), Treasury gained voting rights and could place two individuals on the CDFI depository’s board of directors—as was the case for banks/thrifts, S corporations, and mutual banks (Treasury 2010b). Election rights ended when the dividends were paid in full for four consecutive periods. There were no voting or membership rights whatsoever for CDCI debt from credit unions (Treasury 2010e). Mutual bank debt was subject to additional “state restrictions” (any state law that restricted the voting rights of CDCI debt that could not be modified, waived, or otherwise removed by the appropriate state authorities) (Treasury 2010j).

If a CDFI depository wholly defaulted on its debt, the principal and accrued interest were made immediately due and payable once the event of default transpired. If a credit union defaulted, the National Credit Union Administration placed the credit union into receivership, conservatorship, or liquidation (Treasury 2010e). For state-chartered credit unions, the appropriate Social Security Administration conducted this event (Treasury 2010e). S corporations and mutual banks faced similar consequences by their respective regulators (Treasury 2010d). Bank (or savings and loan) holding companies could declare bankruptcy and place any major bank subsidiary into receivership (Treasury 2010d).

Weighing the CDFI interests while protecting taxpayer investments, Treasury considered several options for each institution to exit the program. In August 2016, after the GAO noted Treasury’s lack of an exit strategy, Treasury implemented a program that allowed institutions to buy back their capital at a discount (Montano 2016).

While Treasury preferred that the CDFI depositories simply paid back the investments in full, partial repayment was possible if the amount was the lesser of 5% of the original injection or $100,000 (Robinson 2017). The majority of CDFI depositories paid back by repurchasing the capital outright.

Treasury conducted auctions as part of its wind-down strategy for the CPP and acknowledged that this was also an option for the CDCI (GAO 2016a). However, the possibility of auctions was contingent on investor demand for the securities, the quality of the underlying financial institutions, and the approval of primary regulators (GAO 2016a).

Debt restructuring was also an option but not with respect to the interest rates on CDCI securities themselves: “Treasury officials noted that, [as of June 2016], they [had] no plans to alter the terms of the program’s rates unless a financial institution was distressed and unable to pay the increased rate. Treasury officials stated that the increases were designed to encourage institutions to replace public capital with private capital within a reasonable amount of time (8 years) and were a cornerstone of the CDCI program” (GAO 2016a).

Restructuring was an option only for distressed CDCI participants that were first willing and able to raise new capital from outside investors (or a merger) (GAO 2016a). Through the inclusion of a private investor, Treasury received cash or other securities that might be sold more easily than preferred stock, but the restructured investments were sometimes sold at a discount to par value. Treasury officials noted that Treasury would approve restructurings for CDCI only if the terms represented a fair and equitable financial outcome for taxpayers.

For the purposes of “winding down TARP programs in a manner that balances speed of exit with maximizing returns to the taxpayer,” Treasury took proposals from CDCI participants to repurchase their outstanding securities at fair value (Montano 2016). Since fair value was typically^FOne CDFI depository received a 20% discount; M&F Bancorp, Inc. repurchased its preferred shares at $800 per share on December 20, 2016 (Treasury 2019c). calculated at a discount 7% or 8% under the notional value, this provided CDCI participants with an incentive to pay back early; without the discount, they would have a strong incentive to retain the cheap CDCI capital until the step-up date in 2018, when it would suddenly become very expensive. In November 2016, SIGTARP recommended to Treasury that it not indicate what discount Treasury would accept; this would help Treasury ensure the highest possible taxpayer repayment (SIGTARP 2017). This early repurchase initiative accepted applications between August 1 and December 9, 2016 (Montano, McArdle, and Hall 2016). According to the GAO report released during this period, each CDFI depository must have proposed to repurchase at least 50% of their outstanding CDCI securities for Treasury to sign on (GAO 2016b). One early repurchaser, Arkansas-based Southern Bancorp, described the early repurchase terms as “very favorable” (Southern Bancorp 2017). By the end of the early repurchase period, 27 of the 57 CDCI participants remaining in 2016 had used it; 26 institutions fully repaid and one partially repaid their CDCI investments (Treasury 2019c).