Tags: Banks | loan | Repay | TARP

WSJ: Banks Using Small-Business Loans to Repay TARP

Friday, 07 Oct 2011 01:49 PM

Banks are using about half of $4 billion in federal funds given to them to lend to small businesses to repay TARP loans, The Wall Street Journal reports.

Smaller banks tend to lend more to smaller businesses, who are crucial in hiring amid economic recovery, and the government's Small Business Lending Fund was meant to help them do just that.

But paying off higher-cost TARP debt, which came with tough restrictions, made more sense to many such banks.

"It was basically a bailout for 100-plus banks," says Giovanni Coratolo, vice president of small-business policy at the U.S. Chamber of Commerce, The Wall Street Journal adds.

"From a point of view of a small business owner, it was very ineffective in getting funds out to small business."

Of 332 banks that received money through the lending fund, 137 used at least a portion — totaling $2.2 billion — to pay off their TARP obligations, Treasury Department data reviewed by The Wall Street Journal show.

Of the total $30 billion available in the fund, only $4 billion in loans to banks were approved.

Consumer spending motors the U.S. economy, yet with economic uncertainty, consumers aren't spending and hiring remains at bay, leaving unemployment rates hovering around 9 percent and refusing to come down.

Many see the unemployment rate staying well above pre-recession levels for years to come.

"It's very conceivable that you could have this 9 percent rate for the next two, three, four years," says Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh, CNBC reports.

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