On December 9, 2009, Treasury Secretary Geithner exercised his discretion to extend the TARP program through October 3, 2010. In his letter to Congress certifying the extension, Geithner indicated that the Treasury Department would limit new commitments in 2010 to three areas:
- mitigating foreclosure;
- “recently launched initiatives to provide capital to small and community banks, which are important sources of credit for small businesses” (including additional efforts to facilitate small business lending); and
- increasing Treasury’s commitment to the Term Asset-Backed Securities Loan Facility (TALF).
The “recently launched initiatives to provide capital to small and community banks, which are important sources of credit for small businesses” presumably refers to the new capital program for community banks previously announced by President Obama on October 21, 2009. President Obama had indicated that the Treasury would be developing a program to provide TARP capital to community banks with less than $1 billion in total assets who committed to increase small business lending. The capital investment, as proposed, would be limited to 2% of risk-weighted assets and would carry a 3% dividend rate for the first five years. No indications were provided that the Treasury’s viability standard would be modified to permit additional banks to participate.
Secretary Geithner’s reference to this program is the first follow-up we’ve heard since Obama’s announcement. As recently as last week, local FDIC officials were telling us that the program appeared to be “dead on arrival” in DC, and there appeared to be little support in Washington for further developments. We understand the FDIC was advising interested banks to not anticipate any further action, and to seek capital elsewhere.
It remains to be seen whether Secretary Geithner’s letter to Congress represents a renewed interest in this program, merely a political statement indicating a focus on small business lending, or a simple preservation of flexibility going forward.