Hatch to Geithner: Administration Must Prevent Small Business Lending from Becoming Another Bailout Fund

In Letter to Treasury Secretary Geithner, Utah Senator Says Taxpayer Dollars Must Be Protected Before Doling Out $30 Billion In New Loans

WASHINGTON – Citing his concern that a small business lending fund will be used to finance more bailouts, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, today called on Treasury Secretary Timothy Geithner to protect taxpayer dollars and ensure banks and financial institutions receiving funding through the Small Business Lending Fund (SBLF) are fully vetted and qualified for access to additional capital.

“Republicans opposed this small business bill last year out of a very legitimate concern that a pot of money would be used to bail out financial institutions at taxpayer expense. Furthermore, the bill was full of accounting gimmicks and budget sleight of hand which hid its true cost from the American public. The Treasury Department must remember that they are giving out hard-earned taxpayer dollars and should exercise thoughtful consideration in approving or denying capital requests,” said Hatch. “We all know what can happen when decisions are not made wisely. I have no intention of letting government bureaucrats pull a Montgomery Brewster, throwing money away with nothing to show for it.”

The Small Business Jobs Act created a new $30 billion fund to free up capital for local banks to lend to small businesses. Although the measure was enacted into law more than five months ago, the U.S. Treasury Department has failed to announce any financial agreements regarding the loans to financial institutions.

In a letter today, Hatch cited concerns regarding the flaccid approval process for banks to receive additional funding from Treasury and urged Secretary Geithner to implement safeguards for taxpayer dollars. Among Hatch’s top concerns were: the short on detail, one-page loan application; the Department’s decision to allow banks to count their outstanding TARP loans as part of their capital; and the loophole in the law that fails to require banks to repay the loans.

Below is the full letter Senator Hatch sent to the Secretary today:

The Honorable Timothy F. Geithner
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Secretary Geithner:

As the Ranking Member of the Senate’s Committee on Finance (“Committee”), I have a duty to oversee the manner in which federal agencies manage revenue and spending. Both state and federal taxpayers demand responsible fiscal stewardship that does not obligate future generations with the irresponsible spending decisions of today.

In September of 2010, the President signed the Small Business Jobs Act, which included a $30 billion small business lending fund (SBLF) designed to provide capital to qualifying banks and other financial institutions in order to facilitate increased lending to small businesses. Many members of Congress, as well as President Obama, were adamant that this legislation was necessary to promote job creation. Prior to passage of the Small Business Jobs Act, the President regretted what he viewed as “needless delay” in the legislative approval process.

It has now been over five months since the legislation was enacted. Yet as of today, not one financial institution has been approved as a recipient of these funds, and not one dollar has been dispersed. Given the urgent pleas of supporters of this $30 billion in taxpayer funded loans, I am puzzled why no action has occurred even five months later. Since the application deadline for applying institutions is now only 16 days away, I am concerned that last minute political pressure to justify the SBLF may lead to an improperly vetted dissemination of $30 billion in taxpayer dollars in order to realize political goals.

Since 578 institutions remain in the Capital Purchase Program (CPP) as of December 31, 2010, I am concerned that many of these same institutions will seek to refinance these outstanding loans to receive more favorable rates subsidized by taxpayers. If these recipient banks do not intend to loan the newly acquired funds to small businesses, then critics of the President’s SBLF program could view this activity as “TARP 2.0.” This type of lending activity does not have any clear discernable benefit to taxpayers and job creators. The Treasury Department’s decision that applying banks can count their outstanding TARP loans as part of their capital base only heightens my concerns.

In order to facilitate proper Congressional oversight of the SBLF, I respectfully request that you provide my office with the following information:

1) On all occasions in which current CPP recipients seek to refinance into the SBLF, does Treasury intend to consult with SIGTARP to determine whether the applying CPP entity is the subject of criminal investigation? If so, is there a written plan listing details and appropriate procedures to ensure this step is taken?

2) An explanation of the cause(s) for the over five month delay from the date of enactment of the Small Business Jobs Act to the purchase of preferred stock in qualifying financial institutions.

3) An explanation of the reason for the administration’s request in the proposed FY 2011 budget for $17.399 billion for the SBLF, rather than the congressionally authorized amount of $30 billion.

4) Information as to whether the administration agrees with the Congressional Budget Office’s view that the investments of preferred stock authorized under the SBLF are not required to be repaid by the recipient institution, and can be counted as Tier 1 capital by the institutions.

5) Information detailing the administration’s view of the financial impact of institutions who have utilized the SBLF electing not to repay the capital received under this program.

6) Information detailing the Secretary’s additional terms for capital investments received by eligible institutions in the event an SBLF institution fails to repay those outstanding capital investments.

7) A description of the administration’s plan to reduce the likelihood of non-repayment of SBLF funds by recipient financial institutions.

Thank you for your prompt attention to this matter. I am conscious of the workload of you and your staff at the Treasury Department, but given the obvious burden that the SBLF imposes on taxpayers and the lack of evidence of any positive economic results, I appreciate your expeditious consideration of this request. I would appreciate your working with my staff to discuss these issues before April 15, 2011.

Sincerely,

Orrin G. Hatch
Ranking Member

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