December 23, 2009 / 2:48 PM / 10 years ago

Treasury to seek easing of bailout fund rules

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking

WASHINGTON (Reuters) - The Treasury Department will ask Congress to ease restrictions on the use of bank bailout funds so it can use some of the money to encourage more lending to small businesses, a department official said on Wednesday.

Treasury is considering using about $30 billion from the Troubled Asset Relief Program, or TARP, for programs to boost lending to small businesses, the official said.

The Treasury official said another $10 billion of TARP funds could go to the Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF, which is designed to revive consumer lending and to boost markets that package consumer loans into securities.

Community banks that are a traditional source of small business lending have voiced a reluctance to take taxpayer capital because of the strings attached, such as strict rules on executive compensation.

No final decisions have been taken on how much TARP money might be used or how it might be apportioned, the Treasury official. The Obama administration has been speaking with bankers, both large and small, about how to get credit flowing more freely to support a recovering economy.

The TARP fund was initially set up last year, with Congress’ approval, for the purpose of buying toxic assets from struggling banks but was almost immediately converted into a program for injecting capital into banks.

Much of the bailout money now is being repaid, frequently with interest, but the administration is trying to find a formula for balancing a message of greater banking accountability with the need for small businesses to be able to get access to loans.

Treasury Secretary Timothy Geithner on Tuesday identified tight lending as one of the most severe risks a recovering economy faces. Small businesses create most jobs, so it is especially critical for them to be able to get credit.

“Right now, the real risk we face is that banks are not lending enough and not going to provide the capital businesses need to grow for the economy to strengthen going forward,” Geithner said in an interview on National Public Radio.

Reporting by Glenn Somerville; Editing by Neil Stempleman.

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