TARP restrictions may be eased to boost US lending

WASHINGTON Fri Dec 11, 2009 6:01pm EST

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WASHINGTON Dec 11 (Reuters) - The Obama administration, in an effort to boost credit to small businesses and encourage them to hire, wants to tap money from a controversial bank bailout fund by cutting strict strings that Congress attached to the cash, an official familiar with talks said on Friday.

The official said the administration was looking at setting up a special purpose vehicle to be a conduit for money from the Troubled Asset Relief Fund, or TARP, that would get around restrictions on executive bank pay.

A senior administration official said that nothing had been decided at this stage.

"Work is being done to see if there is such a credit policy using TARP resources that can be effective, but no final decisions have been made," the official said.

Community bankers separately said that they had discussed ways with Treasury to make funds from TARP more "usable."

"Existing TARP restrictions make it extremely unattractive for banks to use that money and it is the fault of Congress. Treasury is trying to do the right thing," said Paul Merski, chief economist of Independent Community Bankers of America.

The 8,000 U.S. community banks are a valuable channel of credit to small businesses, which in turn are a vital source of U.S. job creation.

President Barack Obama, fighting double digit unemployment that has hurt his popularity, said on Tuesday that he had asked Treasury Secretary Timothy Geithner to continue to mobilize TARP funds to boost lending to small businesses.

The $700 billion fund was set up by Obama's Republican predecessor George W. Bush to rescue Wall Street during last year's financial crisis, and turned out to cost around $200 billion less than initially thought.

Geithner separately said that measures were being considered to find a way of exploiting the remaining TARP money and that Congress would play a role in that process, hinting the TARP law may need to be changed, which could take time.

"We have to find some way to mitigate both the stigma of coming and the fear of changes in the future rules of the game that are going to apply to them," he told the Congressional Oversight Panel, a TARP watchdog body, on Thursday.

Some of the money could be diverted to the Small Business Administration, which guarantees loans to small businesses and was able to leverage $375 million made available under an emergency stimulus package signed by Obama in February into over $16 billion in credit.

That initial money has run out and Senator Mary Landrieu, a Democrat from Louisiana, and Sen. Olympia Snowe, Republican from Maine, on Thursday sponsored a bill to lift the size of loans the SBA can guarantee and secure it more money.

(Additional reporting by David Lawder)

(Reporting by Alister Bull)

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