Small Business Lending Fund: Where Did the Missing $2 Billion Go?
When the Small Business Lending Fund closed its teller window this fall, no one shed any tears. Banks complained the program was slow, arbitrary, and stingy. Of the $30 billion that the Treasury was authorized to lend to small banks at favorable rates, only $4 billion was ever handed over. Of the 933 community banks that applied for money, only 36 percent were approved.
But at least that was 300-odd banks that could lend $4 billion to small businesses, right? Well, not exactly. That’s because more than half of the $4 billion the feds gave to the SBLF this year never found its way to small businesses.
Instead, the banks used the money to pay off their TARP loans.
Okay, so the banks who did this were small banks which are, of course, small businesses. So it has to be admitted the SBLF helped them. It helped them act like big banks.
No one has ever been all that crazy about the TARP (Toxic Asset Relief Program). Taxpayers don’t like it because they see it as a bank bailout program, which it is. Bankers don’t like it because taking TARP money makes it look like they’ve got a lot of bad mortgages on their books, which they do. (Their dislike has nothing, absolutely nothing to do with the fact that it limits how much top executives can be paid. Absolutely nothing. You got that?)
The big banks got out from under this horrible burden by paying off their loans quickly. While the Treasury Department had hoped this is what would happen, it had hoped it would happen because those assets would be worth something. Instead the big banks were able to repay the loans with money they borrowed from the Federal Reserve at a lower interest rate than they were being charged for TARP.
The Fed had lowered the interest rates to encourage banks to loan money to people and companies. This, in turn, was supposed to spur economic growth. Instead it just cost taxpayers’ money by saving money for the big banks.
While this might appear unfair to the average U.S. citizen – which it is – taxpayers weren’t the only ones harmed. So were the small banks. The small banks were unfairly stuck paying back their TARP loans with their own money. That’s because the small banks couldn’t just call up the Fed and get loans at about close to 0 percent. You have to be a big bank in order to do that.
So when the government started passing out money at low-interest rates via the SBLF you can understand how the small banks saw this as an opportunity to keep up with the Goldmans and the Sachs. Indeed, Jason Tepperman, the director for the Small Business Loan program for the Treasury Department, suggested that the community banks do just that. This was good for their fiscal well being and in no way whatsoever had anything to do with any limits to any bank executives’ pay checks. Absolutely nothing.
And it did spur economic activity. After all, someone had to fill in the loan applications.
CONSTANTINE VON HOFFMAN | Columnist
Constantine von Hoffman is a writer and sometime standup comedian. His work has appeared in Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, and Boston Magazine.