H.R. 5297: TARP III

H.R. 5297

TARP III

Date
June 16, 2010 (111th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

The House is scheduled to consider H.R. 5297 under a structured rule on Tuesday, June 15, 2010.  The rule provides for one hour of debate with 30 minutes equally divided and one Republican motion to recommit with or without instructions.  The rule provides suspension authority through June 18, 2010.  The rule provides that in the engrossment of H.R. 5297, the Clerk shall add the text of H.R. 5486, as passed by the House, at the end of H.R. 5297 and H.R. 5486.  H.R. 5297 was introduced on May 13, 2010, by Rep. Barney Frank (D-MA), and referred to the Committee on Financial Services.  The Committee on Financial Services reported the bill on May 19, 2010.

Bill Summary

Title I

TARP III would create a $30 billion small business lending fund and authorize the Treasury Secretary to make capital investments in banks with less than $10 billion in assets.

The fund would be used by the Secretary for the purchase of preferred stock and other financial instruments from eligible institutions.  Preferred stock would have to be redeemed within 10 years of the date of the capital investment.  Some members may be concerned about the lack of constitutional authority for the federal government to purchase ownership interests in banks.)

Eligible institutions would be any insured depository institution, bank holding company or thrift holding company with total assets up to $10 billion.  Institutions with less than $1 billion in assets would be eligible to receive capital investments up to five percent of their risk-weighted assets. Institutions with between $1 and $10 billion in assets would be eligible to receive up to three percent of risk-weighted assets.

An eligible institution may not receive any capital investment if the institution has a rating of 4 or 5 under the Uniform Financial Institutions Ratings System or such institution has been removed from the list for less than 90 days.  (Composite ratings are supervisory rating of a bank's overall condition. The rating is based on financial statements of the bank and on-site examination by regulators.) 

The dividend rate for a capital investment provided under the program would begin at 5 percent annually, but with reductions to as low as 1 percent if a bank demonstrates increased small business lending.  The initial dividend or interest rate would be based on call report data published in the quarter immediately preceding the date of the capital investment under the program.  After five years, the dividend rate would be increased to 9 percent.  Some members may be interested to know that the proposal does not require institutions to lend to small businesses.  Instead, the TARP III would attempt to provide incentives to lend.  Members may also be concerned that this taxpayer bailout may be handed out on terms much more lenient than the market.  The market for capital for small banks is currently requiring a 10 percent dividend, or above in some cases.  TARP III would require capital investments to be repaid within 10 years.

Oversight of the program would be performed by the Treasury Inspector General with a requirement that the Government Accountability Office (GAO) perform a single audit of the program.  Some members may be concerned that the Special Inspector General for TARP (SIGTARP) would be excluded from oversight of the new program, even though SIGTARP has developed the necessary expertise and systems to oversee the TARP program and is requesting access to the new program.

The Secretary would be authorized to issue regulations to permit institutions to refinance securities issued to Treasury under existing Capital Purchase Program (CPP) and Community Development Investment Program (CDIP), authorized by the original TARP.  Some members may be concerned that participating institutions would be permitted (and in fact would have a strong incentive) to convert their existing capital injection from the original TARP to this new TARP III program, allowing those institutions to escape corporate governance restrictions and the oversight regime of the original TARP.

 

Title II

TARP III would also create a Small Business Credit Initiative Program and authorize the appropriation of $2 billion to assist states with making capital available to small businesses by private lenders.  The program would be administered by the Department of the Treasury, and the Secretary would be required to apportion the participating state allocated amounts in one-thirds.

The bill would authorize each participating state to use the funds as collateral for a qualifying loan or swap funding facility, for payment of administrative cost incurred by the state or making federal contributions to an approved state program.

The bill would authorize the Secretary to approve a state's application, under the program, pursuant to the state's meeting certain criteria.

The bill would authorize the Secretary to grant municipalities special permission to apply directly to the Secretary without the state's for approval to be a participating municipality.

 

Title III

The bill would establish a new Small Business Administration (SBA) grant program for venture capital funds to invest in early-stage small businesses in targeted industries.  Targeted industries would include manufacturing, energy, agriculture, IT, digital media, and defense.  The bill would authorize $1 billion for the program.  Grants could not exceed $100 million for any company.  A grant made to a participating investment company may not be in an amount that exceeds the amount of the company's non-federal capital.

Background

The bill is being promoted as necessary to increase the availability of credit for small businesses.  TARP III would create a $32 billion lending program and authorizes the Treasury Secretary to make capital investment in banks with less than $10 billion in assets.  However, the bill represents yet another bailout program that would deepen the nation's debt problems and provide no long-term incentives to create jobs.  Additionally, TARP III unnecessarily duplicates the goal of the original $700 billion TARP program-to generate lending.

According to a recent survey by the National Federation of Independent Business, 8 percent of the small businesses surveyed cited a lack of credit as an immediate problem, but more than 22 percent cited uncertainty about the economy as an immediate problem.   In other words, small businesses are suffering due to the government's intervention in the marketplace.

Cost

At press time, there was no CBO score for TARP III.  However, CBO estimates that implementing H.R. 5297, as reported out of the financial services committee, would cost about $3.3 billion over the 2011-2015 period, assuming appropriation of the necessary amounts.  The cost will be offset when the bill is merged with the revenue-raising H.R. 5486 after House passage.

Amendments

Rep. Israel (D-NY)

#17

The amendment would add veteran and women owned businesses to the groups that will receive outreach under the Small Business Lending Fund.  It would add veteran-owned businesses to those businesses that should receive consideration in the Fund, add veterans to the study on lending assistance, and require the study to report the percent of loans that go to them as a part of the program.

Rep. Schrader (D-OR)

#14

The amendment would establish the Small Business Borrower Assistance Program with a fund for 7(a) loan borrowers to use if they need help paying the principal or interest payments of their small business loans.

Rep. Nye (D-VA)

#26

The amendment would: 1) change the measuring tool determining a bank's increase of small business lending from dollar amount to the actual number of loans made to small businesses; 2) include Small Business Lending Centers with less than $10 billion in assets as qualified financial institutions to participate in the SBLF; 3) add the SBA definition to define what a small business is; and 4) change the base lending amount from a comparison of the 4Q 2009, to a full year of data.

Rep. Minnick (D-ID)

#42

The amendment would make non-owner occupied commercial real estate loans eligible for the program.

Rep. Perlmutter (D-CO)

#32

The amendment would allow small banks to amortize losses or write-downs on commercial real estate loans to increase the availability of credit for small business.

Rep. Price, Tom (R-GA)

#52

The amendment would express the Sense of Congress that small business lending is being hindered by mixed messages from federal financial regulators.

Rep. Green, Al (D-TX)

#57

The amendment would improve disclosures by eligible institutions receiving funding under the program.

Rep. Driehaus (D-OH)

#45

The amendment would institute a new Office of Small Business Lending Fund Oversight.

Rep. Peters (D-MI)

#9

The amendment would give Treasury the authority to recoup funds transferred to states before an audit is conducted if the audit finds that the state misused the funds.

Rep. Miller, Brad (D-NC)

#46

The amendment would expand the definition of “small business lending” used in the bill to include loans made to small business concerns for the purpose of acquiring, constructing, or improving industrial, commercial, residential, or farm buildings.

Rep. Michaud (D-ME)

#18

The amendment would ensure that state-run venture capital fund programs would be able to qualify as "state other credit support programs," as long as they do not use funds under H.R. 5297 to lend to businesses with more than 750 employees.  It would also clarify that state-run venture capital fund programs would be able to qualify as "state other credit support programs," as long as they meet all other requirements.

Reps. Jackson Lee (D-TX)/Cao (R-LA)

#37

The amendment would provide funding to eligible institutions that serve small businesses in communities that have suffered negative economic effects as a result of the Deepwater Horizon oil spill with particular consideration to states along the coast of the Gulf of Mexico.

Rep. Sanchez, Loretta (D-CA)

#4

The amendment would include as part of the selection criteria for investment companies the extent to which the applicant will concentrate investment activities on small business concerns in targeted industries.

Rep. Cuellar (D-TX)

#12

The amendment would require the Secretary to take into consideration areas with high unemployment rates that exceed the national average to increase opportunities for small business development.

Rep. Braley (D-IA)

#35

The amendment would require the use of plain writing by the Treasury Department and the Small Business Administration for documents relevant to obtaining a benefit or service under the bill.

Rep. Loebsack (D-IA)

#38

The amendment would include a Sense of Congress stating that agriculture operations, farms, and rural communities should receive equal consideration through lending activities for small businesses, particularly small and mid-size farms and agriculture operations; and attention should be given to ensuring there is adequate small business credit and financing availability in the agriculture and farming sectors.

Rep. Chu (D-CA)

#5

The amendment would: (1) require the inclusion of linguistically and culturally appropriate outreach where appropriate to the applicant's small business lending plan; (2) provide for linguistically and culturally appropriate minority outreach and advertising; (3) explicitly state minority-owned financial institutions are eligible for consideration of by the Secretary for funding; and (4) require the Secretary, to the extent possible, to disaggregate the results of the report on women-owned and minority-owned business by ethnic group and gender.