Congressional Oversight Panel; Printed from

The Small Business Credit Crunch and the Impact of the TARP

The Congressional Oversight Panel's May oversight report, "The Small Business Credit Crunch and the Impact of the TARP," finds that, although the Troubled Asset Relief Program (TARP) has launched several initiatives aimed at restoring credit availability, it is not clear that they have had any significant impact on small business lending.

Small business credit remains severely constricted. Data from the Federal Reserve show that lending plummeted during the 2008 financial crisis and remained sharply restricted throughout 2009. Although Wall Street banks had been increasing their share of small business lending over the last decade, between 2008 and 2009 their small business loan portfolios fell by 9.0 percent, more than double the 4.1 percent decline in their overall lending portfolios.

Treasury has proposed addressing the credit crunch through a new lending program for small banks, but even if enacted by Congress, could have limited success. The proposed Small Business Lending Fund (SBLF) would provide $30 billion in low-cost capital to small and mid-sized banks, along with incentives to increase lending. The SBLF's prospects are far from certain. The program would require legislative approval, and even if Congress acts immediately, the program may not be fully operational for some time. Moreover, banks may shun the program for fear of being stigmatized by its association with the TARP, or they may wish to avoid taking on SBLF liabilities in such troubled economic times.

Read the Report