WASHINGTON — The Obama administration is developing a major initiative to tackle the economic and political problem of unemployment by getting federal bailout funds into the hands of small businesses.
The proposal involves spinning off a new entity from the Troubled Asset Relief Program that could give banks access to the government money without restrictions, such as limits on executive pay, as long as they use it to make loans to small businesses. But officials are not yet certain whether carving the program out of TARP would be the best way to lure banks to participate in small-business lending, said sources familiar with the matter who spoke on the condition of anonymity because the plans were 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.
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-business lending, community banks and homeowners struggling to keep up with their mortgage payments, and he hinted at the new program.
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.”
Each of those earlier efforts ran into roadblocks. Banks were reluctant to participate because taking the aid would make them look weak and force them to submit to executive-pay limits and other conditions, said Camden Fine, who heads the Independent Community Bankers of America.
“As long as those restrictions, particularly the compensation restrictions, remain as a condition to receiving TARP money, community banks won’t touch it,” he said. “To them, TARP equals toxic.”
No dollar figures have 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, 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.”
