the Republican Cloakroom

Washington, Jun 16, 2010 -

June 16, 2010

H.R. 5297, Small Business Lending Fund Act of 2010

Rep. Barney Frank (D-MA) and 20 Cosponsors

Whatever the cause of the “credit crunch” currently afflicting the American economy, there is a consensus that unless commercial credit becomes more broadly available, a sustainable economic recovery will remain elusive.  Thus far the Majority in Congress and the Administration have experimented with a series of programs that have failed to help small businesses or create jobs, and have succeeded only in adding hundreds of billions of dollars to the national debt.  H.R. 5297, the “Small Business Lending Fund Act,” is unlikely to be any more successful than these earlier failed initiatives. 

H.R. 5297 would establish a new “Small Business Lending Fund” to provide authority for the Secretary of the Treasury to make capital investments of up to $30 billion to banks and savings associations with assets of less than $10 billion.  The bill also includes a provision to create a separate, new “State Small Business Credit Initiative” of up to $2 billion to be used by Treasury to allocate funding to state and municipal programs that support access to credit by businesses.  These funds will be allocated via a complex formula from the Economic Stimulus legislation involving aggregate job losses in 2008-09.  Finally, the legislation authorizes the Small Business Administration (SBA) to establish a new program to provide equity investment financing in support of early-stage small businesses in various targeted industries.  This provision previously passed the House at an authorization of $200 million, but in H.R. 5297 it is increased to $1 billion—without any committee action or any evidence presented that the program needs to be increased by this five-fold amount.   

While Republicans share the goal of helping small businesses prosper and generate the kinds of job opportunities that are sorely lacking in this economy, Republicans do not believe that the solution to the economic distress on Main Street is to establish new bail-out authorities funded by taxpayers.   By creating $32 billion in new bailout funds and modeling them largely after the Troubled Asset Relief Program (TARP), the Majority demonstrates they have learned nothing since the Fall of 2008.  Moreover, their legislation injects capital into banks with no guarantees they will actually lend and subjects the funding programs to even less oversight than TARP.  For all of these reasons, Republicans oppose H.R. 5297 and urge its defeat.

Specific Concerns with H. R. 5297

No Lending Requirements in return for Capital Injections

The stated purpose of this legislation is to increase bank lending to small businesses.  However, the legislation does not require any lending on the part of participating institutions for up to two years.  Instead, it attempts to encourage banks to do so by allowing them to pay back the taxpayers at lower dividend rates if the banks provide more lending.  However, if no loans are extended after two years, participating banks under H.R. 5297 would pay no penalty.  It defies logic that the Majority supports a bill to increase small business lending that does not actually require increased lending.

Title II of H.R. 5297, the “State Small Business Credit Initiative Act,” is also flawed.  There is no requirement that these “State other credit support programs” partner with any private sector financial institution to guide the investment decisions.  Thus, taxpayers will be charged with providing States a $2 billion slush fund, with no possibility for repayment.  The Secretary of the Treasury is directed to establish “minimum national standards” for approving State programs, but given the government’s track record, there is little reason to believe the standards will fully address the risks that taxpayers will end up bearing. 

Another Bailout that Effectively Extends TARP’s Expiration Date

The Majority has denied claims that this bill is nothing more than a “TARP Junior” or “TARP III” whose enactment would have the effect of extending TARP beyond its scheduled October 3, 2010 expiration date.  However, no less an authority on TARP than its Special Inspector General (SIGTARP), Neil Barofsky, has emphatically rejected the Democrats’ attempt to differentiate H.R. 5297 from the TARP program he oversees.  In a May 17, 2010 letter to Chairman Frank and Ranking Member Bachus, Mr. Barofsky wrote that “in terms of its basic design, its participants, its application process, and, perhaps, its funding source from an oversight perspective, the [Small Business Lending Fund created in H.R. 5297] would essentially be an extension of TARP.”

Less Oversight than TARP

The TARP bailout incorporated several mechanisms for oversight including SIGTARP and the Congressional Oversight Panel (COP).  In contrast, the Majority inexplicably seeks to carve out this bill from significant oversight of the taxpayers’ money.  H.R. 5297 will be overseen by the Inspector General for the Department of Treasury, who might not be able to direct sufficient attention to this task given its other responsibilities.  Indeed, the Majority defeated a Republican amendment offered at the Financial Services Committee markup of this bill that would have provided more robust oversight of this newest bailout by SIGTARP—who has invested the time, personnel, and infrastructure necessary to effectively monitor capital investment programs for banks.  This amendment was defeated on a party-line vote. 

Because the solutions to America’s economic problems are not found in more taxpayer-funded bailouts, Republicans oppose H.R. 5297 and urge its defeat.

Provided by the Republican Leadership, Financial Services and Small Business Committee Republicans.