Real News
Obama Expanding Bailout to Small Banks, Businesses
Wednesday October 21st, 2009
WASHINGTON/FOX News -- President Barack Obama wants smaller community banks to have greater access to the government's $700 billion financial rescue fund as the administration refocuses the bailout money on small businesses and homeowners and winds down programs aimed at big banks.
Obama on Wednesday plans to announce a package of initiatives designed to increase lending, including a request that Congress increase caps for existing Small Business Administration loans, the administration said.
The new effort comes as the administration is under pressure from liberals to shift the massive bailout fund's spending away from big financial institutions and toward reducing foreclosures and creating jobs. But it also comes as Republicans press Obama to end the rescue program and use bank repayments to reduce the national debt.
An administration official said the Treasury Department intends wind down and terminate bailout programs launched at the height of the financial crisis to stabilize Wall Street and aid the struggling auto industry.
The official, speaking on the condition of anonymity because the details had not yet been made public, said the $218 billion Capital Purchase Program would effectively conclude at the end of the year. The program has been a central element of the bailout program, infusing banks with government money in exchange for preferred stock.
The administration also plans to cap two programs at levels below initial projections. One program designed to rid big banks of their bad assets will spend $30 billion instead of $75 billion, and another that supports a Federal Reserve effort to ease bank credit will top off at $30 billion instead of $80 billion. An initiative aimed at banks -- the Capital Assistance Program -- had no applicants and will also end, the official said.
Congressional and industry officials said there were few details about the new small bank proposal, including how much of the bailout money would be used. But the American Bankers Association, in a letter to Treasury Secretary Timothy Geithner last month, recommended a $5 billion program for community banks that have not yet received assistance from the rescue fund. The program, as suggested by the association, would apply only to those banks with assets of less than $5 billion.
"Community banks feel like the government assistance efforts to date have left them on the sidelines," said Mark Tenhundfeld, a senior vice president at the bankers' association.
The rescue fund, known as the Troubled Asset Relief Program, has about $320 billion still available to spend -- a combination of unallocated money and more than $70 billion in repayments from banks that received bailouts since late last year. The TARP is set to expire at the end of December, but the administration could extend it until October 2010.
"Given that we are now well into October, it seems probable that there would need to be some extensions," Tenhundfeld said.
Sheila Bair, the chairman of the Federal Deposit Insurance Corp., generally defined community banks as those with less than $1 billion in assets. In testimony to Congress last week, she said those smaller banks have become especially vulnerable in the face of mounting losses and defaults in construction and commercial real estate loans.
Bair testified that she had been discussing TARP help for community banks with Treasury officials, a step welcomed by Democrats but criticized by Republicans.
On Tuesday, Rep. Jeb Hensarling, a Texas Republican on the House Financial Services Committee, urged the administration to end the program at year's end.
"I will strongly suggest to community bankers in my district that they reject an invitation from the Obama administration to participate in TARP," he said.
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