WASHINGTON — President Obama has proposed constructing a new government lending program using $30 billion of the remaining Troubled Asset Relief Program (TARP) funds to offer cheap capital to banks that lend to small businesses.
Obama’s proposed Small Business Lending Fund targets banks with assets of less than $10 billion, which collectively provide more than half of small-business lending in the United States, according to White House estimates. Those banks would be able to borrow money from the Treasury at a dividend rate of as low as 1% if they make more small-business loans in 2010 than they did in 2009.
The proposal asks Congress to divert TARP funds into an entirely new lending program in the hope that banks will find it more acceptable than the oft-maligned TARP.
“In this proposal, we have recognized that small banks are not interested in borrowing from TARP,” Karen Mills, small-business administrator, said at a press briefing. “We have proposed here to Congress that we create a separate lending facility that is not affiliated with TARP and does not carry any of those issues.”
Banks with less than $1 billion in assets would be eligible to receive capital of up to 5% of their assets, and banks with assets of $1 billion to $10 billion would be eligible for capital of up to 3% of their assets. More than 8,000 of the 8,400 banks in the United States would be eligible to participate under these terms, according to government estimates. This plan is designed to give banks an incentive to not hold on to capital, but increase their lending to get better rates instead.
The plan to tap TARP funds has already met opposition.
“The monies recouped from the TARP shall be paid into the general fund of the Treasury for the reduction of the public debt,” Sen. Judd Gregg, R-N.H., said in a Senate Budget Committee hearing. “It’s not for a piggy bank because you’re concerned about lending to small businesses.”
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