The Wall Street Journal reported on Wednesday:
“A number of small banks used $2.1 billion in government cash intended to boost small-business lending to repay bailout funds from the financial crisis, a government watchdog said Tuesday in a report that also concluded the banks lent less money than firms that didn't take bailout aid. …
Among the 332 banks participating in a small-business lending program run by the U.S. Treasury, 137 used more than half of about $4 billion disbursed by the program to help fund their exits from the Troubled Asset Relief Program ….”
But before we criticize the banks for doing this, note this:
“The practice of borrowing from the small-business fund to repay TARP obligations was sanctioned by Congress but has drawn criticism because banks used a program designed to boost lending to shed higher-cost bailout obligations.”
And so, a couple of thoughts. First, it is perhaps not surprising that banks that needed to borrow money from TARP wound up increasing their loans by a lower amount than banks didn’t need to borrow moneu. After all, the banks that borrowed from TARP did so because of all the bad loans they had. Why wouldn’t they want to get those bad loans taken care of and their procedures fixed before making more loans – or at least a lot more loans?
Second, back when this small-business loan program was set up, the Obama administration was talking about all kinds of rules they wanted to put on recipients of TARP money. Who wouldn’t want to pay off their TARP loan and get out from under Uncle Sam’s thumb as quickly as possible?
Third, instead of criticizing banks for using a government handout to do what made sense for them, rather than what the federal government wanted it to be used for, maybe we ought to look at why and how the program was set up in the first place. Maybe the people who came up with the idea for the program didn’t understand as much about how people and businesses operate as they thought they did. More importantly, maybe we ought to keep this experience in mind when people suggest other new programs in the future. It could be that the programs will not work out as well as their proponents promise.
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