Small Banks That got Bailout Money May Need More

According to the Congressional Oversight Panel, many of the smaller banks that received bailout money from the government may need more cash in order to survive. Less than 10% of these smaller financial instructions have paid the government back the funds they were loaned, and some have even missed dividend payments. I have included a section of a WalletPop.com story below on this new development, but you can find the full text here.

If you keep up on banking news, you may have heard the most recent dire report on small banks: If your small bank has taken bailout money from the federal government, that's a good sign your financial institution may be in trouble.

That's the latest from the Congressional Oversight Panel, which last week unveiled a report that drew attention to the fact that most of the small banks that received bailout money are struggling to pay it back.

If you're doing business with a small bank and are suddenly worrying about its health, here's some perspective:

Most of the small banks out there are doing just fine. The U.S. has approximately 8,000 banks, from a handful of giant, nationally known banks and all their branches (Bank of America, for instance, has approximately 7,500 branches across the country) to all those regional and local banks scattered across the 50 states.

Out of the more than 7,900 small banks that remain after you take away, say, the nation's 30 largest banks, a scant one-tenth -- just 707 banks -- took $205 billion of the $700 billion in bailout money. So plenty of small banks out there didn't take any bailout money and are doing quite well.

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.

Continue Reading at WallStreetJournal.com…