MBL Bid Clouds Prospects Of Small Biz Loan Fund Bill

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WASHINGTON – The status of a bill that would raise the current lid on member business loans remains uncertain in Congress at the same time an earlier proposal to create a $30-billion small business lending fund – once though extinct – has come back to life.

The $30-billion small business fund bill passed a key vote in Congress last week, and Democratic leaders have taken steps to try and block a host of amendments from being added to the measure. The legislation is likely to be taken up for final approval this week, where industry representatives said they expect it to pass.

The only potential threat to the bill's passage may be an amendment pushed by credit unions to raise their small-business lending limits to 27.5% from the current 12.25%. If such a measure were added to the bill, community bankers likely would pull their support for the bill, according to American Banker, an affiliate of Credit Union Journal.

Small banks "would not support the small-business lending bill if it, in fact, opened up the lending limit for tax-exempt credit unions," said Paul Merski, senior vice president and chief economist at the Independent Community Bankers of America.

It's unclear if the measure will be included, but sources said Friday it was supported by the Treasury Department. Merski said bankers were fighting to keep it out of the bill. "It's a serious threat to the legislation because the broad financial sector will peal off their support of the package if it gets added," he said.

American Banker reported that observers attribute the surprising turnaround to the bill's relatively low profile – regulatory reform has drawn most of the attention in recent weeks – and a connection to a politically popular effort to help small businesses.

"I just think there's a very strong need to help small-business expansion on every front possible," said Gene Sperling, counselor to the Treasury secretary. "As people see more that this is a program completely outside of TARP and that's just for small banks whose lending tends to be the small businesses … it's hard to object to."

Outside observers agreed.

"Everybody is sympathetic to small businesses," said Mark Calabria, director of financial regulations studies at the Cato Institute and a former staffer for Sen. Richard Shelby (R-Ala.). "It's one of those constituencies that everyone cares about and it fits into the job-creation mantra. And I'm sure every senator has heard someone say they can't get a loan for their small business."

Senate Republicans had been expected to rally against the measure, which would create a $30 billion fund that community banks could tap as capital to increase lending to small businesses. In the House, GOP members had vigorously opposed the bill, branding it another Troubled Asset Relief Program. The House passed the bill June 17 by a 241-to-182 vote, with only three Republicans voting for it. Senate Republicans had been expected to follow suit, but instead the bill easily cleared a June 29 procedural vote, 66 to 33, that limited debate on the legislation.

Adding further momentum, Senate Majority Leader Harry Reid filed an "amendment tree" on the bill, a controversial procedural maneuver designed to block senators from offering amendments and speeding up the bill's passage.

To combat criticism that it is just another TARP, the bill would attempt to push lenders to use money from the fund to boost small-business lending. Banks would see their dividend on the capital they receive drop as they increased loans to small businesses. For example, if such lending rose by more than 10% during the year, the dividend rate would drop from an initial 5% rate to 1%. Other restrictions of TARP, including executive compensation limits and warrants, are not part of the new program.


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