President Obama Wants to Stretch The TARP for Small Businesses
Wednesday, October 21, 2009PAUL KANGAS: Meanwhile President Obama wants to make more money available to small businesses. The idea is to solve the credit crunch hampering main street entrepreneurs. The White House will earmark more funds in the so- called TARP program for small banks, lending the money at 3 percent interest. The administration also wants Congress to beef up to $5 million the money the Small Business Administration can loan on real estate and other assets.
SUSIE GHARIB: But small banks say those measures may not be enough to boost lending to small businesses. For more perspective on the new White House initiative, Darren Gersh spoke with Jared Bernstein, a top economic adviser in the Obama administration.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some of the small banks and the lenders out there are wondering why it took the administration seven months to come up with this program.
JARED BERNSTEIN, WHITE HOUSE ECONOMIC ADVISOR: Well, I think it's important to recognize that the recovery act, which passed last February, had many important measures to help boost lending to small business. This is not our first effort to help ease some of the credit constraints that small businesses face. In fact, under the recovery act, we've helped to support over 30,000 lower cost loans. We've exempted fees. We've guaranteed some of those loans to the tune of 90 percent. What this is about is adding on another, I think, important and needed dimension to help free up credit to small businesses.
GERSH: That 90 percent figure you mentioned is very important to small business lenders. They say it makes it possible for them to lend. And it's unclear whether this program will include a 90 percent guarantee. Will the new program include a 90 percent loan guarantee?
BERNSTEIN: You know, that's a decision that Small Business Administration is going to have to talk about. Right now the components of this program as announced today are a significantly higher caps, so that small business can finance some larger projects. The caps of two of the main programs under the SBA are going from $2 million to $5 million. And then, that's a legislative change. But a change that we can make actually fairly quickly probably in the next few weeks is to take some of the TARP funds, wind down some of the big bank parts of the TARP and expand -- and introduce a part of the TARP that will provide lower cost financing to smaller banks under a billion dollars of assets.
GERSH: Small business lenders are very concerned that the TARP program comes with lots of strings attached. So will you support a change in the law to make it easier for small businesses to be part of this program?
BERNSTEIN: Well, some of the laws actually will facilitate an easier lift for the smaller banks. For example, we take warrants from banks when we lend them TARP fund. But if their borrowing is less than $100 million and some of that will be the case, particularly in some of the community development banks, then we don't take any warrants from them. Secondly, we're going to finance -- we're going to let banks finance this borrowing at a rate of 3 percent, not 5 percent.
GERSH: One of the biggest concerns I've heard from small banks is that the regulators are being too tough. They're forcing them to write down loans and it makes it hard for them to make new loans. So is that a fair criticism that regulators are too tough?
BERNSTEIN: It really has to be taken case by case. I can't speak to the veracity of that criticism broadly. I think probably what you're seeing is that there was, as we now all too well know, a long period where regulators were really asleep at the switch. That got us into this mess in the first place, underwriting loans pretty much based on whether someone was breathing or not and sometimes I wasn't even sure if they had to make that criterion. So the fact that regulators are being a little bit more careful in their underwriting is a good thing.
GERSH: We're just hearing that the Treasury's pay czar Ken Feinberg is going to be forcing the largest banks that took the TARP money to cut the overcall compensation of their top executives by 50 percent. Why that 50 percent figure?
BERNSTEIN: The White House is not able to yet confirm that. I will say that, but I think you and I talked about this before. Let be very clear about who we're talking about. It's a small number of the largest TARP recipients. Now think about this for a second. These are big banks who in the absence of massive -- we're talking hundreds of billions of dollars of infused liquidity from taxpayer funds, were pulled back from the brink, from near death experiences and now many of these institutions are offering compensation levels that are so many multiples above that of the average worker struggling through this downturn, that that's precisely what Ken Feinberg is supposed to be doing on this small select number of institutions who are big TARP recipients.
GERSH: Jared Bernstein, thank you for your time.
BERNSTEIN: Sure.
