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Banks Accuse Federal Reserve of Blocking Use of Small Business Loan Fund

Federal ReserveThe United States Federal Reserve is blocking disbursement of money from a $30 billion government fund created to spur lending to small businesses, endangering the success of the program according to a trade group for community banks.

The central bank, which is the bank that regulates all the banks across the country, has not allowed payment of dividends on the funds, jeopardizing approval of applications according to Independent Community Bankers of America in a letter yesterday to Federal Reserve Chairman Ben S. Bernanke. Independent Community Bankers of America also represents nearly 5,000 institutions and also released the letter regarding the Small Business Lending Fund to media news outlets today.

The Federal Reserve has received the letter and is going to respond to it, according to Federal Reserve spokeswoman Barbara Hagenbaugh. The Treasury has given out nearly $590 million of the amount authorized with less than two months to go until the September 27 expiration date of the program. The program was set up last September by the Obama Administration and Congress in order to give capital injections to community banks that increase their lending to small businesses.

According to Independent Community Bankers of America President Camden Fine, “Many applicants have reported that the Federal Reserve is simply refusing to address the dividend waivers, thus potentially neutering the success of the Treasury SBLF program. We urge the Federal Reserve to help, not hinder, the SBLF approval process.”

Chief Economist for the Independent Community Bankers of America Timothy F. Geithner stated back in June that the Treasury Department received 869 applications for $11.6 billion in capital. Geithner also said at the time that regulators were responsible for the slow start of the Small Business Lending Fund.

“The reason why we’re a little behind schedule is because we are being careful and because the regulators are being careful,” he said at a House Small Business Committee hearing on June 22. “That’s what you want us to be,” he added.

The program allows banks to refinance debt from 2008′s Troubled Asset Relief Program. The treasury began distributing Small Business Loan Fund funding back in July by giving six community banks a total of $123 million in capital.

Source: Bloomberg – Fed Blocking Use of Small Business Loan Fund, Banks Say

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One Comment

  1. Posted August 19, 2013 at 9:29 pm | Permalink

    Well, looking back on that program – these funds were mostly used by small community banks to shore up their balance sheets and were never used to actually put loans out to small businesses – just another bank bail0ut at the expense and excuse of small business loans.

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