WASHINGTON (2/11/09)—The Obama administration Tuesday backed a statutory change that would increase the federally guaranteed portion of Small Business Administration (SBA) loans, a change that could take some pressure off the credit union member business lending (MBL) cap. As expected, U.S. Treasury Secretary Timothy Geithner Tuesday detailed the administration’s new strategy for executing its Trouble Asset Relief Program---or TARP. Under the original TARP, the Treasury was authorized to spend $700 billion to buy troubled assets from financial institutions, although the department had been criticized for how it has spent the money thus far. Others criticized TARP as a misnomer, claiming it did little to reach troubled assets—and Geithner said Tuesday that the administration will scrap that name and call its new approach the “Financial Stability Plan.” Regarding SBA loans, Geithner said “because small businesses are so important to our economy, we're going to take additional steps to make it easier for them to get credit…” “By increasing the federally guaranteed portion of SBA loans, and giving more power to the SBA to expedite loan approvals, we believe we can turn around the dramatic decline in SBA lending we have seen in recent months,” he added. The Credit Union National Association (CUNA) has noted that an increase in the guaranteed portion of an SBA loan could benefit credit unions engaged in SBA 7(a) and 504 lending because the guaranteed portions of such loans do not count towards the credit union 12.25% of assets MBL cap. CUNA also backs an improved timeframe within which SBA would be required to approve applications for loan guarantees. The House economic stimulus plan passed early this month carried both provisions. Another element of Geithner’s announcement of potential importance to credit unions was the creation of a public-private investment fund. Treasury, in conjunction with federal bank regulators and the private sector, will create an “aggregator” of bad assets—already labeled a “bad bank”--to help financial institutions take pressure off their balance sheets. CUNA General Counsel Eric Richard said the investment fund seems to hold some potential for credit unions, including corporates. “We will have to wait for details on who will be eligible to sell assets to this fund, how prices will be set, and so on. CUNA will be pushing for standards and procedures that will give credit unions some long-overdue options," Richard said. Two other primary elements of the Financial Stability Plan outlined by the Treasury secretary briefly are:
* Financial Stability Trust: Requires rigorous “stress test” examinations of institutions applying for new capital investments from the Treasury under the plan; and * Consumer and Business Initiative: To include an expansion of the Federal Reserve’s announced, but not yet implemented, Term Asset-Backed Securities Loan Facility (TALF).
Geithner noted that the Obama administration intends to have its plan for a restructured U.S. financial regulatory system ready to present at the G20 Summit in London April 2. After introducing the Financial Stability Plan in the morning, Geithner testified before the Senate Banking Committee reiterating and expanding his remarks.