Pub. 5 2010-2011 Issue 4

www.nebankers.org 8 Extraordinary Service for Extraordinary Members. T HE TASK FORCE WAS FORMED more than a year ago to find ways to address problems most acutely affecting community banking following the economic down- turn. In fact, in some areas of the country, even the healthiest banks were threatened by continuing bank failures and spiraling real estate values. Bank- ers fromareas hit hard by the downturn were asked to volunteer to serve on the task force. One of the task force’s recommenda- tions was that more needed to be done to ensure that community banks have access to capital-raising alternatives. Among other things, the Small Busi- ness Jobs Act creates a $30 billion fund to provide capital for banks with assets under $10 billion to increase their small-business lending. The Treasury Department is expected toquickly begin working with regulators to develop the program’s term sheet and application. The new law also includes provisions that increase the Small Business Ad- ministration 7(a) guarantee program’s maximum loan size from $2 million to $5 million, and provides $505 million to maintain its temporary 90 percent loan guarantee through Dec. 31—mea- sures that ABAhas long advocated. The bill also reduces small-business taxes by allowing firms to carry back general business tax credits to offset their taxes from the previous five years. Of course, details are yet to be clarified. Amajor one is the regulators’ treatment of the capital investments made through the Small Business Lending Fund. In a letter to the bank- ing regulators, we asked that the capital investments made through the new fund be treated as Tier 1 capital. The legislation is unclear on wheth- er the investments are counted as Tier 1 capital. However, House Financial Services Committee Chairman Barney Frank (D-MA) said on the House floor in a colloquy (a parliamentary discus- sion used to express congressional intent) that “the intention of this leg- islation from the very start has always been that all investmentsmade through the Small Business Lending Fund in all eligible institutions should be treated as Tier 1 capital.” This Tier 1 treatment would make participation in the Small Business Lending Fundmuchmore attractive for the eligible institutions that choose to do so. We told the regulators in our let- ter, “[Community banks] generally do not have the same access to the capital markets as do their larger counterparts and, therefore, Treasury funding is potentially an important source of new capital to support the efforts of these institutions in providing small busi- ness credit.” Passing any legislation these days is more complicated than it should be. First, we had to convince Congress that any TARP-like restrictions or require- ments would mean no bank would sign up for the program. Second, we had to block the credit union lobby’s all-out efforts to add expanded credit union business lending authority to the bill. Fortunately, we succeeded on both counts. The bottom line, as Art Johnson said in testimony before the Senate earlier this year, is simple. “Com- munity banks, like mine, are the backbone of our economy and are critical to the overall improvement of our economy. For a nominal invest- ment by Treasury, viable community banks can be preserved, which in turn would provide more resources for lending and would help create jobs in our communities.” Stay tuned and stay engaged on this and the many other issues ABA and your state association are working on. Z Washington Update Promoting Small Business Lending Edward L. Yingling , President & CEO, American Bankers Association The enactment of the ABA-backed Small Business Jobs Act on Sept. 27 followed months of political advocacy work by ABA and your state association. It also followed efforts by ABA’s Community Bank Solutions Task Force, chaired by outgoing ABA Chairman Art Johnson of Michigan. Reach Ed Yingling by e-mail at ed.yingling@aba.com.