Treasury eyes new TARP program for small bank lending

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The Treasury Department is mulling whether it will ask Congress for legislation to provide some relief from its rules for the Troubled Asset Relief Program for small banks to use to lend to small businesses, bank advocacy groups said Wednesday.

The proposals are under consideration one day after President Barack Obama vowed to press federal agencies to “cut some of the regulatory red tape” that may be limiting the ability of community bankers to lend more to small businesses as the economy recovers.

According to Chris Cole, regulatory counsel at the Independent Community Bankers of America, one of several proposals under consideration at the Treasury Department is a plan that would have Treasury ask Congress to create a public-private fund with capital from private and public sources that would allow small banks to borrow from on favorable terms to use for small business lending.

The public funds would come from the $700 billion bank bailout Troubled Asset Relief Program and small banks could make loans to small businesses of up to $5 million, he added.

A Treasury spokeswoman declined to comment on the proposal.

According to one approach, Congress could write legislation to create a $30 billion fund, made up of $10 billion in private investments and $20 billion in TARP allocations, which would be used to provide loans with favorable terms to banks that they would use for small business lending. With this approach, private investors participating in the program would take the first losses if there was a loss to the program.

Sen. Mark Warner, D-Va., is considering introducing legislation that would create a public-private program to assist in lending to small businesses, according to Warner spokesman Riki Parikh.

Measures to assist in lending to small businesses could be attached either to must-pass bank regulatory reform legislation or a jobs bill expected to be considered early next year in the Senate.

Among other proposals, the agency is also considering seeking legislative authority to allow small banks to receive TARP injections with relief from some of the executive compensation and dividend conditions many small banks consider to be too onerous, Cole said.

“TARP is requiring small banks pay too high dividends to the government,” Cole said.

Dawn Griffin, chief executive officer of Liberty First Bank in Monroe, Ga., population 40,000, said she would certainly entertain borrowing from such a public-private fund, depending on the details. She said an existing Small Business Administration loan program, with government guarantees, is not working in many cases because it requires that small businesses must be profitable during the most recent few quarters.

“There are some very credit worthy customers out there that are holding their own with businesses and are at need for assistance, but under existing government programs we are aware of, they are not eligible because they haven’t been profitable in the most recent quarters,” Griffin said.

She said that favorable terms would likely need to involve government guarantees for the loans. Griffin added that Liberty First, which is located roughly an hour from Atlanta, typically makes loans of less than $2 million to service providers such as plumbers, electrical companies and manufacturers.

(c) 2009, MarketWatch.com Inc. Source: McClatchy-Tribune Information Services.