October 21, 2011
Authored by: Barry Hester and Bryan Cave Leighton Paisner
New investment under the Small Business Lending Fund ended on September 27, 2011, in accordance with its enabling legislation. In the end, 332 institutions received over $4 billion in SBLF funds, and Treasury closed 97 deals worth $1 billion in the program’s final week of investment. We have previously noted that recipient institutions were generally well-capitalized with low levels of non-performing assets. While Treasury has published a version, we have developed our own interactive map of SBLF recipients:
Phoenix-based Western Alliance Bancorporation received the largest single investment under the program ($141 million). More recipients were based in California (29) than anywhere else. Only four entities based in Georgia received funding. As one of those, Appalachian Community Enterprises, Inc., is a Community Development Loan Fund (CDLF), only three Georgia headquartered banks (two state-chartered and one national charter) received funding under the SBLF.
Pennsylvania entities did well under the program (23 recipients). Pennsylvania had 208 FDIC-insured institutions reporting a total of $202 billion in total assets as of June 30, 2011 (compared to 246 institutions and $265 billion in total assets in Georgia). While 73 Georgia banks have been closed since late 2000, only six Pennsylvania institutions have been closed during this time. Pennsylvania has generally not faced the real estate-related asset quality problems that continue to plague many states. In Florida, however, where 59 banks have failed since 2000, seventeen entities received SBLF funding.
In that light, it is not clear to us why only three Georgia headquartered banks received SBLF funds. Based on Commissioner Braswell’s letter to Treasury Secretary Geithner, it may not be clear to anyone other than the Treasury.
In testimony before the Senate Small Business Committee on October 18, 2011, Geithner maintained that the SBLF has been a success. Geithner argued that there were two reasons only $4 billion of the allocated $30 billion fund was disbursed: (1) banks applied for only one-third of the available funds and (2) one-half of those that applied were not eligible to receive funding.
Geithner offered that there was little more that could have been done to promote the program in order to increase the applicant pool. As for eligibility, the Secretary had this to say: “[W]e had to be careful to make sure that taxpayers’ resources were going to banks that were viable, and we were not going to take too much risk – we were going to take some risk but not too much risk that those resources were wasted.” He added that the limited eligibility of the applicants was “in the eyes” of those banks’ supervisors.
Senator Olympia Snowe (R-ME) asserted that limited eligibility under the program should not have been a surprise. It is not clear whether Snowe meant a surprise to Congress, or to Treasury – the latter having adding a key criterion regarding banks’ ability to pay dividends late in the application cycle.
Geithner maintained that the widespread use of SBLF investment by participants to repay TARP funds (roughly two-thirds of the funds awarded) was contemplated and intended by Congress and that, because the SBLF investment includes an incentive for banks to increase small business lending, it is a more valuable form of capital for purposes of promoting job growth. Snowe countered that roughly half of the recipients already qualified for the lowest dividend under the program based on lending increases that pre-dated their SBLF investment. While opinions will assuredly differ on this issue, we hope that bank capital remains at the forefront of the nation’s jobs creation dialogue.