Details Released on Small Business Lending Program

President Obama recently released additional details on his proposal to provide capital to community banks to increase small business lending. The legislative proposal would transfer $30 billion in repaid Troubled Asset Relief Program (TARP) funds to a new Small Business Lending Fund. According to the proposal, banks with less than $1 billion in assets could receive capital investments of up to 5 percent of their risk-weighted assets, and those with between $1 and $10 billion in assets could receive up to 3 percent. To participate, banks would have to receive approval from their primary regulatory authority.

Existing Capital Purchase Program participants with less than $10 billion in assets would be permitted to convert their capital to the new program. Institutions that use the funds would receive incentives to boost lending. For every 2.5 percent increase in lending, the dividend the bank would have to pay the government would drop by one percentage point. For example, if a bank boosted its lending by 10 percent, the initial 5 percent dividend would drop to 1 percent. The president’s plan requires congressional approval, and Republicans have publicly stated that they oppose using repaid TARP money to fund the program, arguing that such money should be returned to Treasury to pay down the deficit. The CBA will continue to keep our members updated on this issue as new information becomes available.