Lenders in Hard-Hit Areas to Get Low-Rate TARP Capital

Treasury Secretary Timothy GeithnerMore than 200 community banks, thrifts and credit unions in neighborhoods hardest hit by the recession will receive low-interest capital to boost small business lending, the U.S. Treasury has announced as part of a new effort under its bailout program.
The $1 billion initiative under the Troubled Asset Relief Program, TARP, targets Community Development Financial Institutions, lenders certified by the Treasury as providing more than 60 percent of their small business lending and other economic development efforts to “underserved communities.”
The CDFIs are eligible for capital investments at a dividend rate of 2 percent, compared to the 5 percent rate that was offered under TARP’s broader program, the Capital Purchase Program, Treasury officials said.
The program for CDFIs was first announced in October, but there has been enhancements since then that “will help better support CDFIs and make credit available to small businesses looking to expand and create jobs.”
Those enhancements include:

  • Allowing institutions to apply for Treasury investments of up to 5 percent of risk-weighted assets – significantly increasing the potential impact on lending in low-income communities. Credit unions can apply for an equivalent amount of total assets. 
  • Offering matching capital investments, up to 5 percent of risk-weighted assets, against private investments on a dollar-for-dollar basis, for CDFIs that are not initially approved by their regulator to participate in the program.

CDFI credit unions can apply for subordinated debt at rates similar to those offered to banks and thrifts. Credit Unions can apply for up to 3.5 percent of total assets – an amount about equivalent to the 5 percent of risk-weighted assets available to banks and thrifts.
“CDFIs offer a wide range of traditional and innovative financial products and services designed to help their customers access the financial system, build wealth and improve their lives,” Treasury said.
The CDFI program is separate from a proposal by President Obama and Treasury to re-direct $30 billion in bailout funds into community banks to bolster small business lending. That program has met with sizeable opposition, and will likely need Congressional approval. It covers a greater number of larger institutions.

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