WASHINGTON – The Obama administration plans to channel money from the government’s massive financial bailout program to small businesses as part of an effort to limit the political and economic damage of high unemployment.
One plan under consideration involves spinning off a new entity from the Troubled Assets Relief Program that would give banks access to federal funds without restrictions, including limits on executive pay, as long as the money was used to support loans to small businesses. But officials are not yet certain whether carving the program out of TARP would be the best way to encourage banks to boost small-business lending, according to sources familiar with the matter who spoke on the condition of anonymity because the plans are not final.
As an alternative, officials are prepared to ask Congress to modify TARP itself, easing the pay limits and other restrictions that would be imposed on small-business lenders taking the money, the sources said.
The move comes as the White House prepares for a summit next week with executives of 12 of the nation’s largest banks in which the administration is expected to press the industry to increase lending, especially to small businesses.
Since the summer, the administration has been facing an uncomfortable dynamic in the economy. The ranks of the jobless have been growing, while big financial firms that got taxpayer bailout money have been thriving. In response, officials have been trying to recast TARP as aid for Main Street rather than Wall Street.
Treasury Secretary Timothy Geithner told a congressional oversight panel Thursday that TARP would focus on aiding small-businesses lending, community banks and homeowners struggling to keep up with their mortgage payments, and he hinted at the new program.
Banks are “very reluctant to come and do business with the government and they’re concerned that, if they come, they will be stigmatized and they will be subject to the risk of conditions in the future that might make it harder for them to run their businesses,” Geithner told the TARP oversight panel. Solving that problem, he added, is “going to be something we cannot do on our own. It’s going to require some help from Congress to help deal with those basic concerns.”
Elizabeth Warren, who heads the oversight panel, chided Geithner for taking so long in setting up several other small-business lending initiatives, two of which were announced last spring.
“It’s not news to anyone that small-business lending is important,” she said. “Small businesses are closing every day. But Treasury has now announced three plans and clearly has not gotten the job done.”
No dollar figures have yet been attached to the new small-business lending effort, which is still in development, the sources said. But it remains one of the top priorities of the Treasury, which is crafting the program, they said.
“The president asked Treasury and (the Small Business Administration) to look hard at how the TARP program could be deployed to help creditworthy small businesses who are not getting the financing they need to grow and create jobs,” said Gene Sperling, a counselor to Geithner. “Treasury and SBA are taking that assignment very seriously and working hard to see what would be most feasible and effective.”
As the economy has slumped, many banks have chosen to rein in lending rather than take government aid, leaving small businesses struggling to get the loans they need to hire workers and keep afloat.
Administration officials said they believe that restoring the flow of credit to small businesses is a key to solving soaring unemployment, which last month dipped slightly to 10 percent but which is forecast to remain elevated for many months.