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Wisconsin CU League News Release - 10/10/2011


TARP II: banks repay bailout debt with taxpayer funds that should be helping small businesses


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Christine Henzig
Director of Communications
(262)549-0200, Ext. 6019

Pewaukee, Wis. – Banks have picked taxpayers’ pockets again. First, taxpayers rescued banks with billions in TARP I funds when the housing market collapsed. And now, instead of extending needed credit to small businesses with the billions of new tax dollars that Congress set aside last year for banks as part of the Small Business Lending Fund—TARP II—banks are using that taxpayer money to repay their initial TARP I debt.


“That’s right - banks are using taxpayer money to repay taxpayers for their bailout,” said Brett Thompson, President & CEO of the Wisconsin Credit Union League. “And at the same time, banks have left small businesses in the lurch—threatening the vitality of hundreds of Main Street communities sustained by small businesses—by opposing federal legislation that would allow credit unions to meet small businesses’ credit needs at no cost to taxpayers.”


Last year, as part of TARP II, Congress approved sending U.S. banks $30 billion in taxpayer funds to get credit flowing – dollars that small businesses need to avoid layoffs or just stay afloat. For example, it has been reported that Wisconsin banks and lending agencies have received a total of more than $100 million through this fund. Credit unions would like to increase their business lending without any taxpayer-injected funds.


But instead of increasing loans to small businesses, more than half of the TARP II funds that U.S. banks have received for that purpose has repaid TARP I debt, according to The Wall Street Journal.


“Banks claim that paying off higher-interest obligations frees up capital for business lending, but that ignores the shell game by which Main Street citizens are footing the bill, and average citizens who own or are employed by small businesses won’t be the ones who benefit,” Thompson added. He says that’s because banks don’t want the modest loans small companies need because the loans are too small to drive shareholder profits. Credit unions, however, routinely make smaller loans because they have no shareholders and exist solely to meet the needs of their member-owners.


In fact, credit unions could add as much as $405 million in new credit that would create 4,400 new jobs in our state alone. But many credit unions have maxed out what they can lend despite three consecutive years of increased business lending because of an arbitrary federal cap on their business lending, set at 12.25% of total assets. Wisconsin voters—84% in fact—support removing this limitation and Forbes magazine has called it a “no brainer.” Still, bankers continue to lobby Congress to keep the arbitrary restriction even while they use tax dollars targeted for small businesses to repay their prior bailout.  Federal regulators support legislation that would raise the cap to 27.5% of total assets, but banking groups oppose it.


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