The Wall Street Journal
By: Elizabeth Williamson
February 2, 2010
NASHUA, NH--President Barack Obama rolled out a $30 billion small business lending program Tuesday, as the White House tried to make congressional passage of its jobs initiatives a test of Republican commitment to bolstering the weak economy.
The administration's proposal would invest $30 billion from the government's Troubled Asset Relief Program in community banks to encourage them to lend to small businesses. If approved by Congress, the program would encourage small- and mid-sized banks to provide loans valued at several times that figure. The lending program is part of a broad package of jobs-growth proposals that Congress will consider in coming days. Republicans in Congress said Tuesday they object to using TARP money as a "piggy bank" for new spending.
Banking industry advocates said the program must be structured so banks don't avoid it as politically motivated, or burdened with excessive restrictions.
"Banks will not touch this if it is under TARP or if there is any possibility of some stigma being attached," said Ed Yingling, chief executive of the American Bankers Association, who supports the idea. "The other issue is the need for regulatory approval. If you are a bank with plenty of capital, then you won't be interested. If you are a bank that could put some extra capital to use, will the regulators approve it or will they be concerned about even one such bank eventually failing and making them look bad?"
Under the proposed program, Treasury would provides capital investments in a swath of the nation's 8,000 banks with assets under $10 billion, which do more than half of U.S. small business lending.
Banks that increase lending to small businesses beyond 2009 levels would qualify for reduced dividends owed to Treasury on the capital investment. White House economists hope that feature will spur interest in the program among community banks that shunned the original TARP program because of restrictions on the capital and worries that they would be tarred by their competitors as "troubled."
Last week, President Obama announced a separate $33 billion program to provide up to $500,000 in tax credits for businesses that add jobs or increase wages beyond the rate of inflation this year. In the 2011 budget blueprint released Monday, the administration also proposes to eliminate all capital gains taxes on small business investment and raise the limit on Small Business Administration loans from $2 million to $5 million.