Thursday, January 28, 2010

White House Plans to Lend $30 Billion to Small Banks

From the Wall Street Journal:

The Obama administration is finalizing plans to create a new government program to lend $30 billion to community banks that would include incentives to boost small-business lending, people familiar with the matter said, a move White House officials hope will help jump-start the economy.

Details are still being finalized and changes could be made, the people familiar with the plan said.

Under one leading version, the government would allow banks with less than $1 billion in assets to borrow an amount equal to 5% of their assets from the government. These banks would have to pay the government a 5% dividend on the loan, but that dividend would be reduced to as little as 1% if the banks substantially increased their lending to businesses.

Banks with between $1 billion and $10 billion in assets would be able to borrow up to 3% of their assets from the new program.

The plan would essentially use leftover money from the Troubled Asset Relief Program to allow banks to tap the government funds with fewer strings attached than the initial program created in 2008. Banks that already have TARP funds would be able to essentially refinance into the new program.

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