Obama to Outline $30 Billion in Small Bank Assistance (Update2)
Feb. 2 (Bloomberg) -- President Barack Obama will propose providing community banks with $30 billion to spur lending to small businesses, administration officials said.
Under the lending plan being announced today, which would use money transferred from Troubled Asset Relief Program and require congressional approval, banks with assets from $1 billion to $10 billion could borrow as much as 3 percent of their risk-weighted assets, while banks with less than $1 billion in assets would get up to 5 percent of their holdings.
In Nashua, New Hampshire, Obama will lay out his proposal to use money repaid to the TARP to expand lending by as many as 8,000 banks to businesses ready to hire new workers, according to the officials, who briefed reporters on the condition of anonymity.
“This will help small banks do even more of what our economy needs: ensure that small businesses are once again the engine of job growth in America,” Obama will say in Nashua, according to excerpts released by the White House.
Obama and his economic advisers have said small businesses must be at the forefront of new hiring to reduce the nation’s unemployment rate, which the administration projects will average 10 percent through 2010. In addition to the new lending program, Obama has endorsed $33 billion in small business tax cuts and incentives for hiring and wage increases. He also is supporting higher loan limits and guarantees through the Small Business Administration.
Jobless Rates
The unemployment rate in New Hampshire was 7 percent in December, up from 4.3 percent a year earlier. That’s still below the national average of 10 percent and better than neighboring states Massachusetts, where the rate was 9.4 percent, and Maine, with 8.3 percent. In Vermont, the rate was 6.9 percent.
The cost to a bank for taking capital from the government fund would decline as lending increased, according to a White House fact sheet. Banks would pay the government a 5 percent dividend while using the cash, a rate that could fall to as low as 1 percent if a bank shows it has boosted small-business lending from 2009 levels. After five years, the dividend would increase to encourage repayment, the fact sheet says.
Banks seeking to participate in the program would have to seek approval from their primary federal regulator.
Trade groups including the American Bankers Association and the Independent Community Bankers of America endorsed the idea, saying they were prepared to work with the administration to enact the proposal.
TARP Taint
Still, community bankers eligible for the program have said a stigma associated with the TARP may make participation more difficult, executives of lenders with less than $10 billion in assets told the chairman and staff of the Federal Deposit Insurance Corp. last week.
“We got lumped in with the Wall Street bailout,” Jan A. Miller, the chief executive officer of Boston-based Wainwright Bank & Trust, told FDIC officials at a Jan. 28 meeting of community bankers. “Even though they’re carving it out of TARP legislation, if it’s recognized as TARP, then we run the risk of being tarnished by the bailout.”
Administration officials briefing reporters yesterday said the money would be separated from TARP and wouldn’t have restrictions associated with the bailout, such as limits on executive compensation.
Republican Skepticism
House Majority Leader John Boehner said the program won’t solve the fundamental problem with the economy: uncertainty over government interventions in health care and energy and the growing budget deficit.
“More government spending isn’t what small businesses need,” Boehner, of Ohio, said in a statement.
The president’s Nashua town hall meeting is part of a ramped-up effort by the White House to communicate directly with the public and overcome what Obama has called “the noise” that he and his advisers say has detracted from his efforts to revive the economy.
In a Jan. 20 interview with ABC News, Obama said he regretted having immersed himself so deeply in policy details during his first year in office that he “lost some of that sense of speaking directly to the American people.”
Since that interview, he has delivered a State of the Union address before a joint session of Congress, held a town hall meeting in Tampa, Florida; addressed House Republicans in Baltimore; and participated at the White House in a questions- and-answers session on Google Inc.’s YouTube that also was streamed on the White House Web site.
“This was terrific,” Obama said after the YouTube event. “I hope we can do this on a more regular basis.”
To contact the reporters on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net
Last Updated: February 2, 2010 13:31 EST
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