In his January 27, 2010 State of the Union address, President Obama renewed his call for using some of the TARP money for community banks in an effort to drive small business lending.

So tonight, I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat.

This proposal would be consistent with President Obama’s speech last October in which he stated the broad outlines of a new program to provide additional capital to community banks in an effort to spur lending to smaller business, as well as Secretary Geithner’s extension of the TARP program.

We understand that government officials have indicated that additional details on the program will be rolled out by Treasury officials in the coming days.  We have previously analyzed the known terms of such an expansion, based on the guidance provided last October.

Generally, it is thought that additional investments in preferred stock with terms generally comparable to those purchased under the Capital Purchase Plan would be made available to banks with less than $1 billion in assets that commit to using the funds for small business lending.  The initial dividend rate is expected to be only 3 percent for five years (as opposed to 5 percent under the CPP terms), but Banks would only be eligible to receive up to 2% of their total risk-weighted assets (as opposed to 3% to 5% of risk-weighted assets under the CPP terms).  No announcements have been made as to whether the Treasury’s viability standard would be altered.

While this program for community banks appears to be going forward, at this time there are no open TARP programs to provide capital to financial institutions.