~Warner, 32 colleagues sign letter to the President~
Oct 21 2009
Contact: Kevin Hall (202-224-2023)
WASHINGTON -- U.S. Senator Mark R. Warner today led one-third of the members of the U.S. Senate in urging the Obama administration to support America's struggling small businesses by unlocking the credit lines typically offered by small, independent and community-based banks.
Warner, a member of the Senate's Banking Committee, wrote and circulated a letter to President Obama containing specific policy proposals that will promote small business lending. The letter ultimately was signed by 33 members of the U.S. Senate, including fellow Virginia Sen. Jim Webb, and was delivered to the White House this morning.
"In my discussions with Virginia entrepreneurs and bankers, it has been frustrating to hear that credit remains tight for Main Street businesses -- the very businesses that could create most of the new jobs that will power any economic recovery," Senator Warner said. "My colleagues and I are recommending a targeted, short-term plan to shift some of the unused bank bailout funds from last fall into a new loan fund, supplemented by local lenders, to unclog the frozen credit lines to small businesses and jump-start the economic recovery at the community level."
Senator Warner's proposal would use existing funds in the Troubled Asset Relief Program, or TARP, and requires participating banks to contribute a portion of their own funds to extend loans to creditworthy small business owners. Community-based banks have extensive experience in evaluating and managing small business loans, but turmoil in the financial services industry over the past year has prompted many banks to curtail or even stop their small business lending activity.
"There have been promising signs in recent months that our economy is turning the corner, and it is important that we do what we can, in a sensible way, to support our small business owners so they can continue to meet payrolls and inventory requirements until we're finally out of the woods," Senator Warner said. "We are not suggesting a 'bailout,' but we are recommending a smart strategy to re-boot the credit market that serves our independent businesses and entrepreneurs."
The text of Senator Warner's letter is below:
President Barack Obama
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500
Dear Mr. President:
Our economy remains fragile as unemployment rises and business activity struggles to recover. Over the past 15 years, 64% of the net new jobs have been created by small businesses, and those businesses employ more than 50% of our American workers. TARP was originally intended to help Main Street by saving Wall Street. We see continued evidence that Wall Street has been stabilized, but to date it seems that Main Street continues to struggle to create new jobs.
Each of us has heard from small and medium sized businesses which, due to a lack of credit, continue to struggle and are unable to invest in inventory, employees or growth. Recently, these concerns seem to have grown. While we want banks to improve their strength, the loss of credit being driven by banks rebuilding capital and disappearance of the shadow lending system is crippling businesses and the capacity of our economy to create jobs.
We believe there is need for a targeted program that will jumpstart small business lending without harming the capital position of banks.
In order to achieve that goal, we propose that Treasury re-obligate a portion of existing TARP funds in order to create a loan pool specifically for small business lending. If we pooled $40 billion and leveraged an additional $5 to $10 billion contributed by participating banks we could make $50 billion in credit available.
Individual banks would be required to place some of their own money at risk, perhaps accounting for 10% or 20% of the lending, which will further compel them to make responsible lending decisions and maximize the potential impact of this loan pool. All banks could participate and would be incentivized to do so through fees and interest generated by the loans. Community banks would be uniquely competitive in this program because they have maintained small business lending capabilities and are most likely to know the entrepreneurs, business owners and customers within their communities.
We believe that Government funds should remain off-balance sheet so banks cannot use the funds simply to bolster their own capital. Additionally, funds should be time-limited and restricted to operating companies - not real estate development companies - which will ensure that these funds quickly reach those business owners who need it most. We believe it may also be useful to set any loan limits well above those used by SBA in order to ensure that businesses too large for SBA but too small to directly access credit markets will have access to desperately needed funding.
Banks that are awarded management of loan pool funds should make lending decisions, subject to fraud prevention oversight. Treasury would serve as the primary sponsor of the program, but rely upon SBA and Federal banking regulators for technical advice, oversight capabilities and delivery capability.
To ensure independence, we request that you include appropriate protections to prevent political interference in lending decisions.
We believe that an additional $50 billion in loans to small businesses, primarily through our community banks, would both refocus the TARP to help Main Street and lead to more job creation. This crisis continues to require complex policy responses and we understand that establishing a program like this may not allow all of the suggestions here to be included. However, this is a potentially significant emerging threat to our economy, and we stand ready to assist you and your Administration in developing a program to address the credit needs of American businesses.