Geithner Defends Small Business Loan Fund

06/23/2011 04:23 pm ET | Updated Aug 23, 2011

WASHINGTON (David Lawder) - Treasury Secretary Timothy Geithner defended the Obama administration's initiative to aid small business lending on Wednesday, blaming delays in disbursing capital to banks on a cautious approach by regulators.

Geithner, testifying before the House of Representatives Small Business Committee, fielded questions from lawmakers as to why none of the $30 billion in capital for small banks in the program had been disbursed. The program was approved by Congress last December.

"I wish it were otherwise, but we're doing what you would expect us to do," Geithner said. "We are being careful with the taxpayers' money."

He said that bank regulators, which must approve the requests before passing them onto Treasury, wanted to ensure that capital was not disbursed to banks that are not viable.

"We can't justify helping to keep them alive," Geithner said of such banks.

The Treasury chief said that so far, the program has received 869 applications from banks for about $11.6 billion in capital, or just over one third of the available funds.

Treasury will soon begin to disburse funds from the program, which aims to leverage $300 billion in new bank loans to small firms, which are considered an engine of job growth in the economy.

Under the program, banks will pay interest rates for the funds ranging from 1.0 percent to 5.0 percent. The more they increase their lending with the funds, the lower the rate they will pay.


Several lawmakers on the Republican-controlled House panel also suggested that small businesses may increase hiring if they had more certainty about the federal budget deficit and their future taxes.

Geithner agreed, but said a bigger challenge was uncertainty about the strength of recovery and said a budget deal needed to protect growth.

"It's important not just to bring more gravity to our fiscal position and demonstrate that we can live within our means, but we have to do that in a way that that's going to be good for growth. Good for the economy in the near term and good for the economy in the long run, and that's a complicated challenge,"

In his prepared remarks, Geithner said the Obama administration would make every effort to aid small firms.

"There is no single silver bullet, which is why we have taken a multifaceted approach," Geithner said in remarks to the House of Representatives Small Business Committee.

Geithner also outlined measures that the Obama administration has undertaken, including tax relief, public-private partnerships, assistance to small exporters and efforts to award federal contracts to small businesses.

Geithner said small companies faced heavy challenges because so many were concentrated in sectors like construction and real estate that were hit especially hard by the recession and bursting of the real estate bubble.

(Additional reporting by Glenn Somerville; Editing by James Dalgleish)

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