{"id":321146,"date":"2010-02-15T06:00:03","date_gmt":"2010-02-15T11:00:03","guid":{"rendered":"http:\/\/washingtonindependent.com\/?p=76544"},"modified":"2010-02-15T06:00:03","modified_gmt":"2010-02-15T11:00:03","slug":"obama%e2%80%99s-small-business-lending-plan-meets-skepticism","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/321146","title":{"rendered":"Obama\u2019s Small Business Lending Plan Meets Skepticism"},"content":{"rendered":"<div id=\"attachment_76546\" class=\"wp-caption alignnone\" style=\"width: 490px\"><img loading=\"lazy\" decoding=\"async\" class=\"size-large wp-image-76546 \" title=\"Obama State of the Union\" src=\"http:\/\/washingtonindependent.com\/wp-content\/uploads\/2010\/02\/state-of-the-union_obama3-480x399.jpg\" alt=\"State of the Union Obama\" width=\"480\" height=\"399\" \/><\/p>\n<p class=\"wp-caption-text\">Obama delivers his first State of the Union speech in January. (Xinhua\/ZUMAPress.com)<\/p>\n<\/div>\n<p>With the unemployment rate hovering just shy of 10 percent and Washington focused on job creation, President Obama this month called on Congress to approve <a href=\"http:\/\/www.whitehouse.gov\/sites\/default\/files\/FACT-SHEET-Small-Business-Lending-Fund.pdf\">a plan<\/a> that would take $30 billion in repaid TARP funds and make it available for small banks to lend to small businesses.<\/p>\n<p>\u201cWe\u2019re going to start where most new jobs do \u2013 with small businesses,\u201d Obama <a href=\"http:\/\/www.whitehouse.gov\/the-press-office\/president-obama-outlines-new-small-business-lending-fund\">said<\/a> at a town-hall event in New Hampshire.<\/p>\n<p><div id=\"attachment_2754\" class=\"wp-caption alignleft\" style=\"width: 140px\"><img loading=\"lazy\" decoding=\"async\" class=\"size-thumbnail wp-image-2754\" title=\"debt\" src=\"http:\/\/www.washingtonindependent.com\/wp-content\/uploads\/2008\/08\/debt-150x150.jpg\" alt=\"Image by: Matt Mahurin\" width=\"130\" height=\"130\" \/><\/p>\n<p class=\"wp-caption-text\">Image by: Matt Mahurin<\/p>\n<\/div>\n<div class=\"floatButtons\">\n<div style=\"float: left; margin-right: 10px; margin-bottom: 10px;\"><script src=\"http:\/\/digg.com\/tools\/diggthis.js\" type=\"text\/javascript\"><\/script><\/div>\n<div style=\"float: left; margin-bottom: 10px;\"><script type=\"text\/javascript\"\n\tsrc=\"http:\/\/d.yimg.com\/ds\/badge2.js\"\n\tbadgetype=\"square\">\n\t<?php the_permalink(); ?><\/script><\/div>\n<div style=\"float: left; margin-right: 10px;\">\n\t<script type=\"text\/javascript\">\ntweetmeme_source = \"TWI_news\";\ntweetmeme_service = \"bit.ly\";\n<\/script> <script src=\"http:\/\/tweetmeme.com\/i\/scripts\/button.js\" type=\"text\/javascript\"><\/script>\n<\/div>\n<div style=\"float: left;\"><a name=\"fb_share\" type=\"box_count\" href=\"http:\/\/www.facebook.com\/sharer.php\">Share<\/a><script src=\"http:\/\/static.ak.fbcdn.net\/connect.php\/js\/FB.Share\" type=\"text\/javascript\"><\/script><\/div>\n<\/div>\n<p>There\u2019s just one problem: there\u2019s little indication that these banks need the money &#8212; or that making it available would stimulate lending. Further, experts from both the left and the right express concern that the funds could be lost to waste or mismanagement without ever contributing to the nation\u2019s job rolls.<\/p>\n<p>Small banks, which write more than half the nation\u2019s small business loans, have wanted their own pool of stimulus money for a while, though they shunned TARP because of executive pay restrictions and reporting requirements they claimed would be too onerous. \u00a0But with outrage building throughout 2009 over the behavior of the nation\u2019s largest financial institutions on everything from failing to execute mortgage modifications to hiking credit-card interest rates and paying top executives outsized bonuses, the small banks saw an opportunity.<\/p>\n<p>Members of the Independent Community Bankers of America, which represents nearly 5,000 community banks, met with the president in December to lobby for a pool of money that came without the strings attached by TARP. The group appeared to get what it wanted with the White House plan, which would allow banks with less than $10 billion in assets to borrow up to 5 percent of their asset base from the Small Business Lending Fund. They could be charged as little as 1 percent in interest if they increased their lending to small businesses by 10 percent.<\/p>\n<p>The problem is, these banks aren\u2019t hurting for funds. \u201cThe assumption seems to be that banks lack the capital, but in fact, that\u2019s not the case,\u201d said Bert Ely, owner of Ely &amp; Company, a financial consulting firm. \u201cSmaller banks are well-capitalized and have plenty of liquid funds. The problem is finding credit-worthy borrowers.&#8221;<\/p>\n<p>According to the Federal Reserve Board\u2019s Senior Loan Officer Opinion Survey released last month, banks did tighten their small-business lending; banks with total assets of less than $20 billion reported cutting off credit to a greater degree than their larger counterparts. Analysts like Ely say small banks\u2019 greater-than-average exposure to potential commercial real-estate losses could be driving this pullback. However, the Fed survey also cited a decrease in demand for loans, leading some analysts to worry that dangling an unnecessary incentive in front of small banks will tempt them to loosen their lending standards too far and make risky loans.<\/p>\n<p>ICBA president and CEO Camden Fine seemed to back up this assertion, telling <a href=\"http:\/\/www.washingtonpost.com\/wp-dyn\/content\/article\/2009\/12\/22\/AR2009122200203_2.html\">The Washington Post<\/a> just two months ago, \u201cWe\u2019ve got plenty of money to lend.\u201d The problem, he told the paper, was a lack of demand from businesses.<\/p>\n<p>Where did all the good borrowers go? Blame two closely related factors for the dearth of credit-worthy small businesses: The length of the recession and the commercial real-estate crash. By now, even business owners who had the foresight to build up their equity during the boom years have burned through that cushion. Those who own real estate have to deal with the fact that this collateral is now worth a whopping 40 percent less than it was in 2007, according to a new <a href=\"http:\/\/cop.senate.gov\/reports\/library\/report-021110-cop.cfm\">report<\/a> from the Congressional Oversight Panel.<\/p>\n<p>\u201cThe intent of the policy is for banks to lower their lending standards, but of course no prudent bank wants to do that,\u201d said Joseph Mason, a professor of finance at Louisiana State University. Mason pointed out that most of the tepid economic growth the country has seen in recent months comes from manufacturing companies replenishing inventory levels, betting on an as-yet-unrealized turnaround. As a result, he said, \u201cA loan to one of these companies is inherently very risky.&#8221;<\/p>\n<p>The administration initially indicated it would only make the program funds available to healthy banks, but the ICBA\u2019s leader is already challenging that, calling on the president this month in <a href=\"http:\/\/www.washingtonpost.com\/wp-dyn\/content\/article\/2010\/02\/02\/AR2010020200542_2.html?sid=ST2010020203832\">The Washington Post<\/a> to allow what he characterizes as \u201cless well-capitalized banks\u201d to participate. Critics counter that this would only mean more taxpayer funds will be irretrievable if any of these banks fail and are placed into receivership by the FDIC, and many are doubtful that Congress \u2014 which would be tasked with crafting the small-business fund legislation \u2014 will acquiesce to this plea.<\/p>\n<p>Opening the door to all small banks regardless of health is a risky proposition, says Gary Burtless, senior fellow in economic studies at the Brookings Institution. Burtless points out that the health of small banks correlates closely to their local commercial real-estate markets. With economists predicting that commercial real estate still has further to fall, it\u2019s almost certain that more small banks in hard-hit parts of the country will succumb.<\/p>\n<p>What\u2019s more, the very reason small banks are as well capitalized as they are today is that they exercised caution during the go-go years, Burtless adds. These institutions passed up a quick buck in favor of what seemed at the time to be old-fashioned lending and underwriting practices. \u201cWhat worked for these banks is being cautious,\u201d he said. \u201cAre you going to make that zebra change its stripes?\u201d<\/p>\n<p>LSU\u2019s Mason labels the program as a cynical political move aimed more at assuaging voter anger over big bank bailouts than actually helping small banks lend or small businesses hire. \u201cIf these guys are going to go to the polls having done nothing for small banks, they really can\u2019t evade the charge that they were a part of the large bank-centric policy that\u2019s at the heart of this crisis,\u201d he said. The plan is about little more than appearances, he charges. \u201cThey\u2019re trying to throw a bone here, not a very economically effective bone, to give the appearance of a balanced policy after the fact.&#8221;<\/p>\n<p>Supporters of the small-bank plan say the nation\u2019s regional and community banks are better equipped to handle an influx of small-business loan requests than the Small Business Administration. Although Mary Landrieu (D-La.), chair of the Senate Committee on Small Business and Entrepreneurship, spoke positively of the president\u2019s plan to increase SBA funding in a post-State of the Union release, she pointed out that this aid comes after eight years of cutbacks the SBA sustained during the Bush administration.<\/p>\n<p>But even left-leaning analysts like Dean Baker, co-director of the Center for Economic and Policy Research, are skeptical that the banks would be more efficient distributors of these funds intended for small businesses. \u201cThe bank\u2019s goal, of course, isn\u2019t job creation,\u201d he says, expressing concern that the real goal here \u2014 reducing a jobs gap some analysts have put as high as 11 million \u2014 could be fall by the wayside in pursuit of profits. \u201cWhat you worry is, can this be gamed?\u201d he said. \u201cI\u2019m not very confident that you could police it.&#8221;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Obama delivers his first State of the Union speech in January. (Xinhua\/ZUMAPress.com) With the unemployment rate hovering just shy of 10 percent and Washington focused on job creation, President Obama this month called on Congress to approve a plan that would take $30 billion in repaid TARP funds and make it available for small banks [&hellip;]<\/p>\n","protected":false},"author":5750,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-321146","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/321146","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/5750"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=321146"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/321146\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=321146"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=321146"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=321146"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}