Washington, DC – To get lending going again, Senators Jeff Merkley (D-OR) and Barbara Boxer (D-CA) introduced legislation Wednesday that will assist community banks in extending credit to small businesses and consumers, urging economic growth and assisting in job creation. By allocating existing TARP funds under a new Community Credit Renewal Fund to community banks, the Bank on Our Communities Act will allow those institutions to raise private capital and spur job growth at the local level.
“Small businesses are the engine of job creation, and community banks provide the fuel that keeps that engine going,” Merkley said. “Community banks have been crushed by the financial crisis through no fault of their own, and the Bank on Our Communities Act will give them the access to capital necessary to re-start lending on Main Street.”
“By increasing lending, we will not only help our small businesses grow, we will create jobs,” Boxer said. “This legislation will strengthen community banks so they can get credit flowing again to small businesses and consumers.”
Small businesses rely on community banks for loans, but tight credit markets have made it difficult for these local banks to raise the capital they need.
Community banks are critical to small business growth and job creation. In fact, community banks hold 11 percent of total industry assets but make 38 percent of small business and farm loans.
The legislation introduced today by Merkley and Boxer will help community banks recapitalize, on the condition that they increase the flow of credit into the economy.
The Bank on Our Communities Act includes four elements:
• Stress test: Participating banks would conduct a two-year, forward-looking review to determine, in consultation with their primary regulator, the amount of capital they need to remain well-capitalized during adverse economic conditions and restart small business and consumer lending.
• Market viability test and government match: The bank would be required to obtain commitments from private investors for at least one-half of their target recapitalization. Treasury would provide the remainder of the target recapitalization from a new Community Credit Renewal Fund drawn from TARP monies. Treasury would have the option to veto the bank’s request. The bank could request early confirmation of Treasury’s willingness to provide the matching funds.
• New lending: Participating banks would be required to generate new credit equal or greater to the amount of capitalization received from the Federal government. By the end of 2010 the bank would be required to increase overall business loans outstanding by at least 5 percent over the lowest level reached in 2009. Additional incentives would be given for banks to increase lending to credit-worthy businesses above the minimum levels required for program participation.
• Limited duration: Up to $15 billion would be committed for the Community Credit Renewal Fund, and banks with up to $5 billion in assets would have nine months to qualify to participate.