New Provisions in the 2025 Tax and Spending Bill, Plus Pending Legislation, Poise Banks to Deepen CRA-Eligible Investments 

By Barry Wides, CPA
Managing Director, Artisan-Advisors 

Several provisions in the recently enacted 2025 Tax and Spending Bill (Public Law 119-21) will significantly broaden community development investment options for banks under the Community Reinvestment Act (CRA). This article explores these new provisions and looks ahead to the potential for increased bank small business investment opportunities through the Investing in Main Street Act (H.R. 754) and affordable housing and community development investments through the  Community Investment and Prosperity Act (S. 2464).  

Background on the Community Reinvestment Act (CRA) 

The Community Reinvestment Act of 1977 encourages federally insured banks and savings associations (collectively referred to as “banks”) to meet the credit needs of all communities, particularly low- and moderate-income neighborhoods. Bank regulators evaluate compliance with the CRA, with larger institutions (those with assets of $1.609 billion or more) undergoing three specific tests, including an “investment test” that evaluates “qualified investments” aimed at community development. Banks with assets between $402 million and $1.609 billion are subject to an “investment test” and a “community development test,” but unlike large banks, they do not receive a separate evaluation for their volume of “qualified investments.” Additionally, limited purpose or wholesale banks are evaluated based on their overall community development activities, rather than separate evaluations of their qualified investments. 

Regulators’ Interagency Q&As clarify the types of community development investments eligible for CRA credit, including investments in Low-Income Housing Tax Credits (LIHTCs), New Markets Tax Credits (NMTCs), and Small Business Investment Companies (SBICs). Additionally, the Office of the Comptroller of the Currency (OCC) has indicated that certain Qualified Opportunity Funds (QOFs) under the Opportunity Zone (OZ) provisions may also qualify for CRA credit. 

Key Provisions in the 2025 Tax and Spending Bill  

Low-Income Housing Tax Credits (LIHTC) 

The LIHTC program is the largest affordable rental housing program in the U.S., having produced 3.7 million units to date. Banks typically purchase LIHTCs from developers or syndicators, which in turn raise capital for affordable housing projects. In exchange for their investment, banks receive tax savings over time. In 2024 alone, approximately $28.9 billion in investor equity flowed into housing tax credit funds, with about 80 percent of that coming from banks, according to a CohnReznick report. The 2025 Tax and Spending Bill made revisions to the LIHTC, which will enable the development of an estimated 1.22 million additional affordable housing units, opening up further opportunities for banks to invest in LIHTCs. 

New Markets Tax Credits (NMTC) 

The NMTC program incentivizes investment in low-income communities across the U.S. Banks invest in NMTCs by purchasing credits from Community Development Entities (CDEs), which then fund eligible projects. The U.S. Treasury allocates these credits through a competitive process, and since its inception in 2000, $91 billion in NMTC allocations have been made. The 2025 Tax and Spending Bill permanently authorizes $5 billion in NMTC allocations annually, ensuring continued funding for economic development in distressed areas and providing banks with greater investment certainty. 

Opportunity Zones 

The Opportunity Zone (OZ) program encourages investment in distressed areas by offering tax incentives for capital gains reinvestment. Banks can reinvest capital gains into Qualified Opportunity Funds (QOFs), which fund real estate and business developments in Opportunity Zones. Benefits include the deferral of taxes on original gains and the exclusion of gains from the OZ investment if held for more than 10 years. The 2025 Tax and Spending Bill makes the Opportunity Zone program permanent and increases incentives for investment in rural areas and property rehabilitation, further expanding opportunities for banks to participate. 

Small Business Investment Companies (SBICs) 

SBICs are privately owned investment firms that provide financing to small businesses, leveraging both private capital and SBA-backed loans. Banks have been significant investors in SBICs due to attractive investment returns and CRA credit eligibility. Under the House-passed Investing in Main Street Act, which was just introduced in the Senate, banks would be allowed to invest up to 15 percent of their capital and surplus in SBICs, up from the current 5 percent limit. This proposed change would enable small businesses to access more capital, stimulating economic growth in communities across the country. 

Conclusion 

The provisions outlined in this article offer tremendous opportunities for communities seeking affordable housing, economic development, and small business growth. However, to ensure these provisions are fully utilized, legislative changes must be made to allow banks to make more community development investments. The Investing in Main Street Act, passed unanimously by the House of Representatives in February, addresses this issue for SBICs. And the Community Investment and Prosperity Act (CIPA) would raise the separate “public welfare investment” statutory cap, which currently limits bank equity investments in activities such as LIHTCs, NMTCs, and Opportunity Zones, from 15 percent of a bank’s capital and surplus to 20 percent.  The CIPA legislation was incorporated into section 205 of the ROAD to Housing Act of 2025, which was voted out of the Senate Banking Committee by a unanimous vote on July 29.  Given the expansions in LIHTC, NMTC, and OZ provisions, this increase in the public welfare investment cap could unlock even more investments and economic growth.  A precedent exists for raising the public welfare investment cap, as the 2006 Financial Services Regulatory Relief Act increased the cap from 10 percent to the current 15 percent. At the time, the OCC estimated this increase would generate $30 billion in private investment.   

As the legislative landscape continues to evolve, these reforms—coupled with potential increases in bank investment capacity—could usher in a new era of private capital driving public good in underserved communities. 

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About the author: Mr. Wides is a leader in Artisan Advisors’ risk management practice.  Mr. Wides previously served as Deputy Comptroller for Community Affairs in OCC’s Bank Supervision Policy Department and was responsible for administration of the public welfare investment authority for national banks and federal savings associations.