WASHINGTON — For months the biggest issue dogging a $30 billion small-business lending fund for community banks was whether it could survive the Senate.
But with the bill's 61-38 victory on Thursday, observers quickly began looking ahead to a host of practical questions about how and when the program would be up and running, and whether it would prove more attractive to bankers than the tainted Troubled Asset Relief Program.
"The key thing here is now that the passage looks imminent, it's going to be up to the bank regulators," said Paul Merski, senior vice president and chief economist with the Independent Community Bankers of America. "It's critical for the bank regulators to quickly implement this small-business lending fund and get it out to the interested banks as Tier 1 capital, and get that program geared up."
With regulators facing a host of implementation challenges for the recently enacted regulatory reform law, it is unclear how fast the agencies could get a program up and running.
The bill also still faces one final political hurdle. Although the House passed a version of the bill in June, the Senate version is significantly different, adding Small Business Administration enhancements and a host of tax breaks for small businesses.
Speaker Nancy Pelosi said Thursday that the House did not plan to fight for changes and would quickly approve the Senate version to complete the legislative process. "We will take up this legislation in the House as soon as possible and send it to the president's desk," the California Democrat said in a press release. "Small businesses cannot wait any longer for these vital tools to create jobs and strengthen our nation's economy."
Under the program, any bank with less than $10 billion of assets could apply for capital. It would initially pay a 5% dividend, but it could see that lowered to as little as 1% if it significantly boosts small-business lending. Unlike Tarp, the fund is free of warrant requirements or restrictions on executive compensation.
But even if the bill is passed by the House and signed into law soon, regulators face a series of challenges in setting up the lending program. Regulators will have to outline qualification standards for banks and create an application process. In particular, bankers want details about whether certain Camels ratings will be required as part of participation, whether the capital will count as Tier 1 and if transfers from Tarp's Capital Purchase Program to the small-business one will be honored.
"The legislative part is the first hurdle. There are about four or five hurdles in front to get through and we just want to make sure we get those right," said James Ballentine, the director of grassroots and community outreach with the American Bankers Association. "The more questions that lenders have, the less likely the chances are that this program is going to perform as designed, which is to get the money out the door right away."
Kip Weissman, a partner with Luse Gorman, said that he is advising interested bank clients to talk to their regulators before they apply and get a feel for the regulators' attitude about the program.
"There's a lot of issues. The dirty little secret is that Tarp is the template but no one wants to admit that for obvious reasons," he said.
"There is a lot of interest, but there is a lot of caution too. It would behoove the Treasury to be very careful about this and Congress is very aware of this too. … We're hopeful that this will be rolled out in a way that makes it productive because God knows it's needed."
One advantage over Tarp will be the program's voluntary nature.
"The great benefit with this effort is that it is voluntary," Ballentine said. "So for those lenders that want another tool… they are very excited and very eager to see this come down the pike."