New Watchdog Report Claims Bailed-Out Banks Did Small Businesses Dirty

April 15, 2013  |  

According to a report by the special inspector general for the Troubled Asset Relief Program, 137 community banks used $2.1 billion from a special fund aimed at boosting lending to small businesses to repay their bailouts from the financial crisis.

Congress created the small-business lending fund in 2010 to encourage banks with less than $10 billion in assets to increase their lending to small businesses. “At a time of economic distress, the aim was to help small businesses get capital that had become difficult for them to obtain. The loan program charged the community banks lower interest rates if they used the money for loans to small businesses,” reports The Huffington Post.

Here is how the numbers break down: The Treasury Department was given permission  to spend up to $30 billion on loans to small banks under the program. But only $4 billion was spent. Of that $4 billion, $2.7 billion was forwarded to 137 bailed-out banks. But instead of using the money to increase their small business lending, the banks used $2.1 billion of it to repay the higher-interest rescue aid they had received from the government—and it was all legal.

Under the Troubled Asset Relief Program, the small-business lending fund “turned out to be little more than a TARP exit strategy,” Special Inspector General Christy Romero said in a statement. Under the law, the banks were allowed to use money from that program to repay their bailouts. “By repaying TARP funds, banks were able to escape limits on executive compensation and other restrictions” explains HuffPo.

The Treasury Department isn’t happy with the report and in fact has disputed the report’s findings.  But, according to the Treasury, some of the bailed-out bank funds did go to small business lending. The department claims that the increase in small business lending was about 40 percent.

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