Treasury To Offer Expanded TARP Loans To Banks In Hardest Hit Communities

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The Treasury Department announced Wednesday that it plans to use a portion of the $700 billion financial bailout fund known as the Troubled Asset Relief Program, or TARP, to boost lending in communities hit hardest by the economic downturn.

Certified community development banks, thrifts and credit unions that devote at least 60 percent of their business to low and moderate income communities will be able to apply for the TARP funds at lower interest rates and for longer terms than other institutions.

Instead of the 5 percent for five years terms laid out in the program, community development institutions will be able to borrow the Treasury funds at 2 percent for eight years, according to senior Treasury officials who briefed reporters on the program on condition they not be identified.

Treasury is also loosening a requirement that institutions must be certified as financially viable to participate in the program, saying they would match private capital raised by the institutions to meet the requirements.

That would show Treasury that there was at least one other investor confident enough in the future health of the institution, many of which have been particularly hard hit by the economic downturn, which has dried up capital from other banks or philanthropists.

The officials said that the goal of the increased lending in hard hit communities is to ensure that the economic recovery does not overlook such places, leaving them in a continued downward spiral.

The administration is setting aside up to $1 billion of the financial bailout funds to support this program, which it said was in response to a strong interest in the funds from the community development financial industry.

The lending, which the administration hopes will support small business and job growth in distressed areas both urban and rural while also addressing the broader lending needs of those communities, is in addition to the initiative President Obama announced Tuesday to boost small business lending.

The small business lending program requires congressional action, while the administration can initiate the community development loans under their existing authority.

The officials said they planned to have official term sheets for the program available by the end of the week and will open up applications by the end of the month.

The new small business lending initiative is necessary, the officials said, because many small and medium sized banks are leery of accepting funds from TARP because of the stigma attached and because Congressional actions aimed at the largest banks who received the most support sometimes have unintended and unwelcome consequences for others who received the money.

The community development financial institutions, however, were less concerned with the stigma and eager to get the funds flowing quickly. So, the officials said they decided to use TARP funds rather than wait for additional legislation to move through Congress.

The Treasury Department announced Wednesday that it plans to use a portion of the $700 billion financial bailout fund known as the Troubled Asset Relief Program, or TARP, to boost lending in communities hit hardest by the economic downturn. Certified community development banks, thrifts and credit unions that devote at least 60 percent of their business to low and moderate income communities will be able to apply for the TARP funds at lower interest rates and for longer terms. (Market News Provided by RTTNews)