WASHINGTON - Treasury under Secretary Frank Newman said that in a further step to boost small-business lending. the government may eventually. expand the pool of loans that sound banks can make with minimal documentation.
Under current initiative, the loans that need only minimal documentation cannot exceed 20% of a bank's capital.
Once this program has time to prove itself, Mr. Newman told the House Small Business Committee, "if banks come back and say that 25% would permit us to make more loans, we will take a look." But he said such a change might have to wait a year.
Last week, Comptroller of the Currency Eugene Ludwig told New England lawmakers that his agency would consider permitting more banks to participate in the new program. Currently, only banks rated 1 or 2 on the regulators' Camel scale can participate.
Discussions by Agencies
Mr. Newman said the agencies "are having conversations" about permitting strong 3-rated banks to participate, which would satisfy congressional critics.
"One very real problem is that some of the restrictions on lending that have been lifted have been lifted only for the most highly capitalized institutions," said Rep. John J. LaFalce, D-N.Y., chairman of the small business committee. "Yet the areas of the country that continue to suffer the most, such as New York and California, contain few such institutions."
In response to a question Mr. Newman said the government would review the low-documentation program to make sure banks are not using the pool for older loans made with inadequate documentation.
"If there are abuses, we'll find a way to correct them."