If the Durbin Amendment and its entirely foreseeable unpleasant unintended consequences haven’t yet convinced you of how hapless the government is when it involves itself in the nuts and bolts of the lending business, let us return for a moment to another recent government-instigated banking fiasco: the Small Business Lending Fund. For sheer pointlessness, this one has been hard to top. Yesterday’s Wall Street Journal provides an exclamation point to the whole, sorry saga:
More than half of $4 billion in federal funds disbursed this year to spur small-business lending by community banks was used to repay bailout funds that the banks received under the government’s Troubled Asset Relief Program.
The Small Business Lending Fund was meant to raise capital at smaller banks, which tend to lend more heavily to small businesses, in the hopes of jump-starting growth and employment. But instead of directly lending to small businesses, many of the banks used the money to rid themselves of higher-cost TARP debt and tougher restrictions. [Emph. added.]
Of course! We should have known it would end this way. Just to re-cap: most banks chose to not even participate in the SBLF in the first place. Then the Treasury decided to turn down most of the banks that did sign up. Now it turns out that the bulk of what money that was doled out didn’t go, as was intended, to fund small-business loans. Banks used it to repay TARP instead. What else should anyone have expected? Your tax dollars at work.
How pathetic. Let’s review the sorry math:
SBLF funding authorized by Congress $30 billion
Amount of funding banks bothered to apply for $11.8 billion
Amount of funding approved by Treasury $4.0 billion
Amount actually lent to small business $1.8 billion
You read that right. Just 6% of the funding originally approved by Congress actually ended up going where it was intended to go. I suspect the government spent more on the salaries of the bureaucrats who turned the banks down than it did on SBLF capital used to fund small-business loans.
Are you sensing a pattern? Congress enacts the Durbin Amendment limiting interchange fees on debit cards-and fees on debit cards shoot up. Congress enacts the CARD Act restricting term and rate changes card lenders can impose-and credit card loans become more expensive and harder to get. The Fed restricts overdraft protection programs-and free checking disappears. And in the piece de resistance, Congress sets up a $30 billion fund for small-business lending, and essentially no small businesses get loans from the fund.
At best, these programs have done no harm to banking customers and, at worst, they’ve made things worse. Message to Congress: you’re not helping! You should want an industry full of healthy banks, operating in a stable, predictable regulatory environment, willing to make prudent loans and without having to worry about second-guessing from on high. That’s not happening. Instead, government meddling is interfering with credit creation, not enhancing it. Nobody wants that.
What do you think? Let me know!