President Barack Obama wants smaller community banks to have greater access to the government's $700 billion financial rescue fund to assist small businesses that are still suffering from a prolonged credit crunch.
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 focus away from helping big financial institutions and toward homeowners and small businesses. But it also comes as Republicans press Obama to end the rescue program and use bank repayments to reduce the national debt.
Congressional and industry officials said there were few details about the new 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.
"I just hate to hear us moving to that mode," Sen. Bob Corker, R-Tenn., said. "I think we should end TARP at the end of the year."