• COP May Report: Where is the Credit for Small Business Owners?

    In their May report, members of the Congressional Oversight Panel (COP) check up on Treasury Secretary Timothy Geithner's progress in directing TARP funds toward opening credit for small businesses. So far, they do not see a lot of improvement. From the report: Unfortunately, small business credit remains severely constricted. Data from the Federal Reserve shows 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 entire lending portfolios. Some borrowers looked to community banks to pick up the slack, but smaller banks remain strained by their exposure to commercial real estate and other liabilities. Unable to find credit, many small businesses have had to shut their doors, and some of the survivors are still struggling to find adequate financing. Treasury has launched several TARP initiatives aimed at restoring health to the financial system, but it is not clear that these programs have had a noticeable effect on small business credit availability. The largest TARP program, the Capital Purchase Program (CPP), provided hundreds of billions of dollars in new capital to banks, but Treasury did not require recipients to use the money to improve credit access. In fact, after receiving the money, most recipients decreased their lending. The Term Asset-Backed Securities Loan Facility helped to restore liquidity to the securitized lending market, but because relatively few small business loans are securitized, the program had little impact on small business lending. Although the Public-Private Investment Partnership program remains in its early stages, it has not targeted and will likely not target the smaller financial institutions that often serve small businesses. Here is COP chair Elizabeth Warren discussing the key findings of the May report: For the full report, click here .

  • Congressional Oversight Panel Focuses on Credit

    In its May report, the Congressional Oversight Panel (COP) highlights the importance of America’s small businesses to the country’s overall economic well being: Under any definition, small businesses play a vital role in the U.S. economy, and their health in the months ahead will be a necessary precondition for economic recovery. They are not only the engines of innovation – many of the largest corporations began as small businesses – but they are also America’s largest job producers. Today, more than six million small business employers collectively employ more than half of all private-sector workers. 12 Small businesses have generated more than half of all new jobs over the past ten years; from 2004-2005, they created 78.9 percent of new jobs. Moreover, small businesses produce about half of the nation’s private, nonfarm GDP. Access to credit is a key component of small business health. COP chair Elizabeth Warren notes that one of the stated reasons for the Troubled Assets Relief Program was the concern over the freezing of credit. And since COP was created to monitor the implementation of TARP, the panel looked at whether the federal government has done enough to create access to credit. And the report shows primary concern for access provided to small businesses and homeowners. Here is Warren discussing the May report. Read the full COP report for May here .