On September 16, 2010, the Senate adopted H.R. 5297, the Small Business Jobs Act of 2010, which includes the creation of the $30 billion Small Business Lending Fund. The House passed the Senate’s version of the bill in full on September 23, 2010, thereby sending it to President Obama for his signature. This legislation would (finally) implement the program described in President Obama’s State of the Union address (and first announced almost one year ago) from the beginning of the year to provide additional funds to community banks to lend to small businesses.
The version of the legislation is generally comparable to the version the Senate began considering in July but contains many differences from the version previously adopted by the House in June. Most significantly, the Senate-adopted bill does not permit eligible institutions to amortize losses and write-downs on certain OREO and NPAs secured by real estate. For convenience, we have posted the text of the Small Business Lending Fund provisions contained in the Senate-passed bill.
Under the terms of the Senate-adopted bill, eligible depository institutions with $10 billion or less in consolidated assets (as of December 31, 2009) may apply to receive a capital infusion of up to between 3% and 5% of the institution’s risk-weighted assets, less any existing TARP CPP or CDCI funds. Institutions with $1 billion or less in consolidated assets are eligible for up to a 5% investment, while those institutions between $1 and $10 billion are only eligible for 3%. (Under TARP, only institutions with $500 million or less in consolidated assets were eligible for capital up to 5% of risk-weighted assets, so this potentially represents an increase in available funding for institutions between $500 million and $1 billion.)
Institutions on the FDIC’s problem bank list are explicitly excluded from eligibility under the Small Business Lending Fund. The bill defines the problem bank list as the list of depository institutions having a current CAMELS composite rating of 4 or 5, or such other list designated by the FDIC. The bill explicitly emphasizes that merely because a bank has a CAMELS rating of 3 or better does not limit the discretion of the Treasury Department to deny an application for funds.
Matching with Private Funds.
The Small Business Lending Fund explicitly authorizes the Treasury and federal regulators to consider making an investment conditioned on private matching investments. This authorization is not available for institutions that are specifically ineligible (i.e., those on the troubled bank list) but rather is only available to otherwise eligible institutions that the regulators or Treasury determine not to recommend to receive capital infusions.