(Reuters) - The U.S. Congress is preparing to act on a $30 billion proposal by President Barack Obama to encourage independent banks to lend to small businesses.
Gene Sperling, counselor to Treasury Secretary Timothy Geithner, is scheduled to testify on the proposed legislation before the House of Representatives Financial Services Committee on Tuesday. The panel is scheduled to begin debating the bill on Wednesday.
Originally, the administration proposed carving out the money from the $700 billion Troubled Asset Relief Program that was used to bail out Wall Street firms. But the legislation says the new fund would be separate.
Small banks had worried they would be stigmatized for participating in a TARP-related program and were worried about the tough restrictions that might be tied to the funds.
Here are the major details of the proposal:
* Banks with less than $1 billion in assets would be eligible to receive capital investments up to 5 percent of their risk-weighted assets.
* Banks with between $1 billion and $10 billion in assets would be eligible to receive up to 3 percent of risk-weighted assets.
* Banks would have to be approved by their primary federal regulator and submit a small business lending plan.
COST OF CAPITAL AND INCENTIVES TO LEND
* The cost of the capital would start at 5 percent in terms of the dividend a bank pays to the government. But this would decline as a bank increased its small business lending, falling by a percentage point for every 2.5 percent rise in incremental lending, to a minimum rate of 1 percent.
* Banks get the dividend cut sooner if they make early and consistent progress toward increased lending.
* After five years, the dividend rate would be increased to encourage timely repayment.
* The legislation calls for the Department of Treasury’s Inspector General to oversee the small business lending program with the Government Accountability Office performing annual audits of the program
Compiled by Reuters Washington Bureau; Editing by Kenneth Barry
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