Our bank is considering forming a charitable foundation as a mechanism to make large donations and grants to entities in the community we serve. Although the bank would not own the foundation we would give a large chunk of money to it with explicit directions on the use of the proceeds for CRA purposes.

My question is: How will the examiners look at the formation and use of such an organization. Do we need to track the actual use of funds for the examiners? Should we be very specific in the amount of funds to be used in each geographical area we serve?

Any input or feedback on this subject would be most appreciated. By the way we are a large bank.

We have done something similar to this and had to track investments by geography. We are in 10 different major markets and another 30 minor markets in Texas and we determined we had to spread the investments among each market in order to achieve a satisfactory level of investments and services so that each market, when judged for CRA, could receive a satisfactory rating on a stand alone basis. We decided we wanted the bank's name on the fund, since the majority of contributions would be from our bank.

Thanks for your feedback. It's good to know that other folks have experience in this area. I think we will most likely be like your institution in that we will be the only source of funding for this foundation. It sounds like as long as we control the amount and disbursement of funds into each of our assessment areas we will be okay. We already have a system in place to guage how much we need to invest in each assessment area so if we continue to direct our funds into the regions that are lacking (albeit through the foundation) we should be okay.

We haven't went through the large bank exam yet, but we have formed a foundation and during our recent CRA exam the examiner mentioned that we would want to document the file well on where the funds went (obviously) and what income areas it was used for (low to mod will get you the credit for CRA if I understood him correctly). In the file we would need something from the community/agency receiving the donation stating where the funds would be used and what it would be used for (neighborhood to show what census tract was involved or demographics of the people they serve).

Make sure you also pay attention to the rules for foundations-accounting, requirements on gifts-how much must be given away, and so forth. It is important to comply with those rules. Some are being reviewed now and may change. I do not know the specifics, but I have friends who work for foundations - even some foundation compliance officers - and the rules are very important.