Are damaged small banks worthy?

The Obama administration has pledged $30 billion to help community banks boost small-business lending. That has led to a big debate centering on one issue: should strugglers be eligible?

Industry groups are pushing to allow struggling banks into the program if the capital would improve their fiscal health. Some industry observers, however, say the money would best serve its intended purpose by going to stronger banks that can get it out the door faster to deserving businesses.

In online poll, 61% of readers said strugglers should be eligible, 31% said the money would do more good in the hands of stronger banks, and 8% said they weren't sure.

Do you think struggling community banks should have access to the program? Post a comment below.

Comments (20)

The capital would be used by community banks, whose job it is to lend in to their community, to increase small business lending. Struggling community banks would be able to use the new capital to grow and not just to increase or replenish reserve levels. Community banks main source of revenue is loan interest and not the diversified stream of income the big banks have.

Posted by Carlos G | Monday, February 08 2010 at 5:21PM ET

This is a double edge sword. If a bank is not making money due to loan problems, then why would you want to encourage them to lend money when their underwriting ability is questionable?

If Treasury ends up loosing money on this program, here we go again another black eye for community banks. At least before knowledge folks knew it was the big money center banks that got TARP and in part was blamed for this mess.

Now we want to tarnish true community banks by giving money to banks that made poor judgements. It is my understanding that most failed community banks were overly consentrated in loans to developers.

The community banks that are profitable and made sound credit decisions should be helped if they truly will use the capital to make sound small business loans.

The devil is in the details.

Posted by GARY F | Tuesday, February 09 2010 at 11:29PM ET

What happened to Capitalism? Community Banks, unless they are mortally wounded, should be able to raise capital privately. Government capital support will only serve to lengthen the time a wounded bank has before making a critical decision to either sell or merge, and while that is happening, strong banks that have sustainable models are diluted. Has anyone considered providing help to strong , stable community banks that have proven track records? How about allowing Loan Loss Reserve to be tax deductible? or how about providing tax incentives to profitable institutions that increase their lending base?

Let's reward those that are doing it right, and let government worry about job creation...

Posted by FRANK S | Sunday, February 14 2010 at 4:52PM ET

Perhaps the question should be whether any bank should receive governmant money. If bank leadership can not guide their bank through these turbulent financial times do they deserve tax payer support? The market should decide!

Posted by Ann C | Sunday, March 07 2010 at 7:56PM ET

An impressive share, I just given this onto a colleague who was doing a little analysis on this. And he in fact bought me breakfast because I found it for him. :) Business Cash Advance

Posted by Peggy B | Friday, April 01 2011 at 5:56AM ET