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The administration's plan to spur small-business lending hit a big snag Tuesday as House Financial Services Committee Chairman Barney Frank acknowledged the program has no funding source.
May 18
WASHINGTON — The House Financial Services Committee approved a bill Wednesday to create a $30 billion fund to encourage small-business lending, despite Republican objections that the legislation was another version of the unpopular Troubled Asset Relief Program.
The committee adopted the bill 42 to 23 after adding some strings to it designed to improve oversight of the program and place some limitations on which institutions can participate.
The bill is expected to be approved by the full House next Wednesday, but its outlook in the Senate is unclear.
During debate, Democrats fought to rebut GOP arguments that the legislation was the same thing as Tarp.
"The Tarp program didn't [spur lending] because the Tarp program wasn't aimed at doing this. … This is a very different kind of program," House Financial Services Committee Chairman Frank said.
But Republicans continued to press their case, making an argument that may have more traction in the Senate.
"I still think this is the Tarp program money by any other name," said Rep. Jeb Hensarling, R-Texas. "We keep hearing people say, 'We don't want to have the Tarp stigma.' But unfortunately it is still taxpayers' funds. … If this is not the identical twin to Tarp, it certainly is a very close kissing cousin."
Rep. Scott Garrett, R-N.J., even introduced an amendment to rename the proposed Small Business Lending Fund the "Tarp Junior Act of 2010." (His amendment failed.)
"If we are creating another Tarp program, then let's call it what it is," Garrett said.
The bill would create a $30 billion Small Business Lending Fund to provide capital to community banks who agree to boost their lending to businesses. Bankers would see the dividend they pay on any funds drop as they increased their small-business lending.
The program would be free of some of the restrictions of Tarp, such as warrants and executive compensation.
To avoid a connection with Tarp, the bill would call for the allocation of $30 billion in new funds, although it remains unclear exactly where that money would come from.
Still, the panel did add some requirements to the program.
It adopted an amendment by Hensarling that would prohibit any Tarp bank from using the program that missed a dividend payment to Treasury Department, although the Texas Republican agreed to work with Frank on revised language before the bill comes to the floor.
The panel also adopted an amendment by Rep. Gary Miller, R-Calif., that would prohibit banks on the Federal Deposit Insurance Corp.'s problem bank list or those with a Camels rating of 4 or 5 from the small-business program.
Hensarling attempted to expand that classification limitation to include banks with a Camel rating of 3 so that the fund is limited to only "sound banks."
"I'm trying to set the bar a little higher," he said.
"I don't want a bank that has even a scent of supervisory concern to be able to access these dollars."
But Democrats argued that banning Camel 3 banks would set the bar too high to have much effect.
The committee also adopted three amendments to increase oversight: one would require a monthly report to Treasury on institutions' use of the funds, another would audit a state guarantee program and the third would require a transaction report twice a year with the banks' name and capital-injection amount.
Republicans tried to pass two amendments by Hensarling. One amendment would require banks to display a notification to customers that they are participating in the program; it failed by voice vote. The other amendment, to appoint the Tarp inspector general as its oversight arm, failed by a vote of 42 to 23.
For community banks, "there is a stigma with the Tarp program," Frank said. "To put it under the Tarp inspector general is a guarantee the program doesn't work well."
The committee also adopted amendments that would sunset the fund after 10 years, use proceeds to pay down the public debt and require federal regulators to establish minimum underwriting standards for loans made through the program.
