Bailout Programs Failing to Spark Small Business Lending

President Obama and Treasury Secretary Timothy GeithnerBank bailout programs have failed to generate needed credit to small businesses and prospects are not good, according to the May report by the Congressional Oversight Panel, the watchdog over the U.S. Treasury’s $700 billion Troubled Asset Relief Program.
“Although the Troubled Asset Relief Program (TARP) has launched several initiatives aimed at restoring credit availability, it is not clear that they have had any significant impact on small business lending,” the panel’s report said.
In addition, the panel is casting doubt on the Obama Administration’s much heralded $30 billion TARP re-allocation intended to ultimately assist small businesses.
The Small Business Lending Fund (SBLF) would provide the $30 billion in low-cost capital to small and mid-sized banks, along with incentives to increase lending.
“Moreover, banks may shun the program for fear of being stigmatized by its association with the TARP, or they may wish to avoid taking on SBLF liabilities at a time when their existing assets, such as commercial real estate, remain in jeopardy,” the oversight panel’s report said.
The SBLF also raises questions about whether “any capital infusion program can successfully jump-start small business lending,” the watchdog’s May report said.
The largest TARP program, the Capital Purchase Program provided hundreds of billions of dollars in new capital to banks, but Treasury did not require recipients to use the money to improve credit access, according to the panel.
“In fact, after receiving the money, most recipients decreased their lending,” the report said.
In addition, the Term Asset-Backed Securities Loan Facility helped restore liquidity to the securitized lending market, but few small business loans are securitized and the program had little impact on lending to these businesses.
Aside from SBLF, Treasury has announced new initiatives to improve credit access for small businesses, but they too may not fare well, the report said.
The Community Development Capital Initiative (CDCI) will serve only a limited number of very small institutions, while Small Business Administration Securities Purchase Program would affect only loans guaranteed by the SBA.  Both programs are proceeding under Treasury’s existing TARP authority. 
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