Bloomberg News

Geithner Defends Performance of Small Business Lending Fund

October 18, 2011

(Updates with comments at the hearing starting in the eighth paragraph.)

Oct. 18 (Bloomberg) -- Treasury Secretary Timothy F. Geithner told senators today that the Small Business Lending Fund had been successful even if it was smaller than envisioned.

The program closed Sept. 27, having distributed just more than $4 billion of its $30 billion to 332 community banks nationwide. In total, 933 institutions applied for $11.8 billion in funding. Treasury has blamed the low participation on a lack of interested and qualified applicants.

“You can’t force banks to lend, but for every bank that got capital in this program they have more capacity to lend than they otherwise would have,” Geithner told members of the Senate Small Business and Entrepreneurship Committee about the fund, which was created a year ago.

Under questioning from senators, Geithner said he shared their frustration that the program was not as extensive as had been hoped. He said the approval process took time to implement and depended on bank regulators, adding that Treasury had legal constraints on communicating with institutions when applications were denied. Treasury now has arrangements with supervisors to share with banks reasons for refusals, he said.

The program provided federal capital to community banks with less than $10 billion in assets and included incentives to increase loans to small companies to stimulate growth.

‘Urgent Times’

Republican Senators criticized the results of the program. Senate Small Business Committee ranking member Olympia Snowe, a Republican from Maine, said she is concerned the administration “failed to create the kinds of conditions that are warranted in these urgent times.”

“When one remedy after another fails to solve the crisis that has mushroomed into what is now a state of catastrophe, it’s long past time for the alarm bells to sound,” Snowe said.

Geithner said banks applied for only one-third of the program’s capacity and of those, only half of applicants were eligible. The program was slow to get off the ground, “because we’ve been very careful to make sure these investments came with strong protections to protect the taxpayer’s interest,” he said.

Snowe and other Republicans also criticized the way banks used the program to refinance funding provided by the Troubled Asset Relief Program. KBW Bank Index has estimated that $2.2 billion of capital by 137 TARP recipients were replaced by financing from the Small Business Lending Fund, representing 67 percent of the fund’s investments.

Foreclosures ‘Still Terrible’

Geithner said the program was designed to be used to refinance TARP funds and that the level of use was expected by Treasury.

Geithner fielded questions on a range of topics, including regulatory and tax reform, the housing bubble and solutions for homeowners facing foreclosure.

The foreclosure situation “is still terrible and there is no other way to say it,” he said. “The major mortgage servicers are doing an unacceptably bad job in serving customers.” The Obama Administration is working to put in place a program that should be laid out “in the next few days” that would allow “many more Americans to refinance” and take advantage of low interest rates.

In his prepared statement and testimony, Geithner urged approval of the $447 billion jobs bill to boost the economy.

“I join the president in urging this Congress to work together and take action -- to support the specific provisions in the American Jobs Act, which both Democrats and Republicans have embraced in the past,” Geithner said. “The government needs to act to strengthen overall growth to improve the conditions for our small businesses, so that they have the confidence and the resources to put Americans across the country back to work.”

President Barack Obama has said he is willing to work with Republicans in Congress to pass parts of jobs plan, which fell short of the 60 votes needed to advance from the Senate on Oct. 11.

--Editors: Gail DeGeorge, Paul Badertscher

To contact the reporters on this story: Cheyenne Hopkins at Chopkins19@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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