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Top Official, Citing TARP, Doubts Obama's Small Business Lending Plan

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The watchdog overseeing TARP doubts that President Barack Obama's plan to boost lending to small businesses will actually work, according to prepared remarks delivered Tuesday.

The plan, like TARP, relies on injecting taxpayer funds into banks. While TARP funds were dispersed to stabilize the financial system, Congress also intended that the money be used to maintain lending and to stem the rising tide of foreclosures.

TARP accomplished neither, which is why Paul Atkins of the Congressional Oversight Panel doubts this new plan will work.

"After a thorough review, we found little evidence that these programs have had a noticeable effect on business credit availability," Atkins said in his prepared remarks to the House Financial Services Committee.

This new $30 billion initiative involves pumping money into community banks -- those with less than $10 billion in assets -- with the hope that they'll lend it out to small businesses. Banks will get the taxpayer cash at a five percent rate; the more they increase their lending, the cheaper the money gets. It can drop to one percent.

No such incentive existed in TARP.

It's the incentive that leads administration officials to think that this plan will boost lending.

In a recent report, the Congressional Oversight Panel said that banks with more than $100 billion in assets cut their lending after receiving taxpayer cash, while medium-sized banks experienced an increase.

Megabanks cut their small business lending by nine percent from 2008 to 2009; their overall lending dropped just four percent.

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