[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
   BROKEN PROMISES: THE SMALL BUSINESS LENDING FUND'S BACKDOOR BANK 
                                BAILOUT

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 24, 2013

                               __________

                           Serial No. 113-19

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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                      http://www.house.gov/reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           ROBIN KELLY, Illinois
ROB WOODALL, Georgia                 DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky              PETER WELCH, Vermont
DOUG COLLINS, Georgia                TONY CARDENAS, California
MARK MEADOWS, North Carolina         STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan        MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida                VACANCY

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 24, 2013...................................     1

                               WITNESSES

The Honorable Christy L. Romero, Special Inspector General, 
  Office of the Special Inspector General for the Troubled Asset 
  Relief Program
    Oral Statement...............................................     5
    Written Statement............................................     8

                                APPENDIX

A Response to SIGTARP's Draft Audit Report: ``Banks that Used the 
  Small Business Lending Fund to Exit TARP''.....................    42
Department of Treasury, Office of the Inspector General, Audit 
  Report, Small Business Lending Fund: Soundness of Investment 
  Decisions Regarding Later-Entry, Withdrawn and Reconsidered 
  Institutions in the SBLF Program...............................    47
GAO, Small Business Lending Fund, Additional Actions Needed to 
  Improve Transparency and Accountability........................    64
GAO, Small Business Lending, Opportunities Exist to Improve 
  Performance Reporting of Treasury's Programs...................   118
The Honorable Elijah E. Cummings, a Member of Congress from the 
  State of Maryland, Opening Statement...........................   174
The Honorable Michael R. Turner, a Member of Congress from the 
  State of Ohio, Opening Statement...............................   176
The Honorable Tony Cardenas, a Member of Congress from the State 
  of California, Opening Statement...............................   177
Letters to the Honorable Darrell Issa and the Honorable Elijah 
  Cummings from the Credit Union National Association (CUNA).....   179


   BROKEN PROMISES: THE SMALL BUSINESS LENDING FUND'S BACKDOOR BANK 
                                BAILOUT

                              ----------                              


                       Wednesday, April 24, 2013,

                  House of Representatives,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:30 a.m. in room 
2154, Rayburn House Office Building, the Honorable Darrell Issa 
[chairman of the committee], presiding.
    Present: Representatives Issa, Turner, McHenry, Jordan, 
Walberg, Lankford, Gosar, Farenthold, Meadows, Cummings, Clay, 
Connolly, Duckworth, Kelly, Davis, Horsford, .
    Staff Present: Alexia Ardolina, Majority Assistant Clerk; 
Kurt Bardella, Majority Senior Policy Advisor; Molly Boyl, 
Majority Parliamentarian; Lawrence Brady, Majority Staff 
Director; John Cuaderes, Majority Deputy Staff Director; Brian 
Daner, Majority Counsel; Adam P. Fromm, Majority Director of 
Member Services and Committee Operations; Linda Good, Majority 
Chief Clerk; Christopher Hixon, Majority Deputy Chief Counsel, 
Oversight; Michael R. Kiko, Majority Staff Assistant; Mark D. 
Marin, Majority Director of Oversight; James Robertson, 
Majority Senior Professional Staff Member; Laura L. Rush, 
Majority Deputy Chief Clerk; Scott Schmidt, Majority Deputy 
Director of Digital Strategy; Rebecca Watkins, Majority Deputy 
Director of Communications; Beverly Britton Fraser, Minority 
Counsel; Kevin Corbin, Minority Professional Staff Member; 
Jennifer Hoffman, Minority Press Secretary; Elisa LeNier, 
Minority Deputy Clerk; Lucinda Lessley, Minority Policy 
Director; Jason Powell, Minority Senior Counsel; Dave Rapallo, 
Minority Staff Director; Rory Sheehan, Minority New Media Press 
Secretary.
    Chairman Issa. The committee will come to order.
    Today's hearing, Broken Promises: Small Business Lending 
Funds Backdoor Bailout, will come to order. But before we 
begin, I would like to yield to the ranking member to introduce 
our newest member to the committee.
    Mr. Cummings. Mr. Chairman, thank you very much. It is with 
tremendous pleasure that I introduce the committee to our 
newest member, Ms. Robin Kelly, from Illinois, Chicago 
specifically. She has a record of standing up for the rights of 
citizens and working very hard to make sure that folks live the 
very best lives that they can.
    She is a very brilliant young lady. Her reputation precedes 
her. We just want you to know, Congresswoman Kelly, that we 
welcome you, we look forward to working with you. As you know, 
we have quite a bit of jurisdiction in this committee. So you 
fit right in, with the types of things that you have been 
concerned about are the very things that we address on a daily 
basis.
    So welcome, and I am sure you will find that on both sides 
of the aisle you will have a welcome reception. We try to work 
together to get as much done as we possibly can. Welcome.
    Thank you, Mr. Chairman.
    Chairman Issa. Thank you, Mr. Cummings. I might note, one 
of the rules of the committee that I think you will be pleased 
about is that you are here at the gavel, if you look from Mr. 
Cummings down, you are fourth to ask questions when we come up. 
All these empty chairs, they will come after you. So welcome to 
the timeliness of the committee also.
    And you, you are fifth.
    [Laughter.]
    Chairman Issa. Good morning. The Oversight Committee's 
mission statement is that we exist to secure two fundamental 
principles. First, Americans have a right to know that the 
money Washington takes from them is well spent. And second, 
Americans deserve an efficient, effective government that works 
for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold government accountable to taxpayers. Because taxpayers 
have a right to know what they get from their government.
    We will work tirelessly in partnership with citizen 
watchdogs to deliver the facts to the American people and bring 
genuine reform to the Federal bureaucracy.
    Today I might note that at the White House signing ceremony 
in 2010, President Obama promised that Small Business Lending 
Fund would help main street banks lend to main street small 
businesses. That is a portion of the signing ceremony that I 
remember, because in fact, it was one of the important 
promises, and one that I believed we would keep. Because small 
business and their access to capital is the difference between 
growth and no growth.
    The truth is, large corporations had a short-term problem 
of capital, and it disappeared almost overnight. Since that 
time, whether it is the high yield or other forms of access, 
large companies, particularly public companies, have had access 
to some of the least expensive money in my lifetime. But today, 
we will see the Special Inspector General's audit reveals the 
primary reason why the Fund exists was to give banks a backdoor 
exit out of TARP. That bothers me. I wish it wasn't so. I wish 
it wasn't in the report. But, in fact, while banks were helping 
themselves, small businesses, the engine of our economy, were 
not getting the assistance they need.
    Two point seven billion dollars, or more than two-thirds of 
all SBLF funds, went to banks that were already in TARP. With 
the Treasury Department's blessing, these banks used 80 percent 
of those funds to exit TARP at a lower interest rate, rather 
than lend it out to small businesses. That means millions of 
taxpayer dollars were taken away from the American people and 
allowed to sit in the accounts of banks that received TARP 
funds.
    With the Administration's blessing, and I might note, the 
Administration is a very broad word, and during this hearing, 
we will get more refined as to who in the Administration, TARP 
banks were able to escape restrictions on governance, executive 
pay, and luxury expenditures.
    What I can't get past is the fact that former Treasury 
Secretary Geithner made the absurd prediction that these banks 
would lend out $10 for every $1 in funding. The audit sampling 
found that TARP banks lent out only $1.13 for every $1 in SBLF 
funds. Once again, the American people were told one thing and 
in fact, for self-interest of the banks that received this, 
just the opposite occurred.
    There are real inconsistencies to what was said and what 
was done that create real questions of what the Treasury 
Department should have done and how they are going to explain 
to us their failure. I asked the Treasury Department to appear 
before today's hearing. They refused, even though the committee 
offered them that we would make extraordinary exceptions and 
accommodations for their participation.
    Let me be clear. Their absence does not absolve them of the 
responsibility to answer questions to the American people they 
have a right to know.
    I will today submit questions to the Treasury Department in 
the record. And I imagine the gentleman from Maryland, Mr. 
Cummings, will also have many questions. I insist that we be 
answered those questions, or we will have another hearing. This 
committee looks for waste, fraud and abuse. To put this money 
into people who didn't need it is not only wasteful of funds, 
but it ultimately denied the American people that GDP growth 
they so much wanted and needed.
    I represent small business. Not just in that I have many in 
my district, but I came from small business. I know that in 
fact capital accumulation for growth is the hardest thing for a 
small business to do. They lean heavily on their community 
banks. They lean heavily at times on SBA. There is no basis 
under which that should have happened.
    I might note in closing, TARP has been a success when it 
comes to big banks paying back their loans. They paid them back 
early, they paid them back with interest. The truth was, most 
of the banks that received TARP money never really needed it 
except as a confidence statement. That reality says that this 
was less excusable, much less excusable because ultimately they 
were going to pay it back. This simply gave them an ability to 
do it sooner and for less.
    With that, I recognize my partner and colleague in this, 
Mr. Cummings, for his opening statement.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    And thank you, Ms. Romero, for testifying before us today. 
We appreciate your service, and we thank you and everyone in 
your office for the work that you do. It is outstanding work.
    Small businesses are the lifeblood of our Country's 
economy. When small businesses thrive, America thrives. When 
small businesses have access to credit, they hire more workers 
and they replenish their inventories.
    This was the rationale behind the passage of the Small 
Business Jobs Act of 2010. In order to help small banks 
increase their lending to small businesses, Congress created 
the Small Business Lending Fund as an investment in America's 
future. Since the inception of the program in 2011, it has been 
a marked success. Lending to small businesses has increased by 
$8.9 billion, which translates to more than 38,000 new loans to 
small businesses.
    More than 80 percent of these loans are for less than 
$250,000 and they are making a critical difference to a host of 
very small but very important businesses. My home State of 
Maryland has benefitted greatly from this program. 
Participating banks have increased their loans to small 
businesses by more than $280 million. I am proud to think of 
the number of family-owned restaurants, florists and day care 
centers that are thriving with these loans.
    The chairman's home State of California is also benefitting 
from this program. California's small community banks 
participating in the program have increased their lending to 
small businesses by more than $590 million. The fact is that 
the entire Country is benefitting from this program, 
particularly in the southwest, where more than 11,000 small 
businesses have received loans, and in the chairman's region in 
the southwest, where 9,500 small businesses have received new 
loans.
    Today we hear about a report issued by the Special 
Inspector General for TARP that is critical of this program 
because it allows financial institutions to essentially 
refinance some of their TARP funds with funds from the Small 
Business Loan program. We have to keep in mind, however, that 
this is exactly what Congress authorized. We did this in 2010 
when we created the program. We wanted to incentivize banks to 
make loans to small businesses as across the Country in order 
to spur growth to help lift our economy out of the recession.
    And the bottom line is that the program is working. All of 
the banks are making their interest payments to the Treasury 
Department, and not one has missed a payment. In fact, Treasury 
now estimates that these investments will be repaid fully, 
along with $50 million profit to the American taxpayer.
    Although I appreciate SIGTARP's work, today's hearing would 
have been more helpful to the committee members if we could 
have heard from additional witnesses. I agree with the chairman 
that that is essential. For example, Treasury officials should 
be here to offer their response, but they were given only eight 
days notice and they could not complete their testimony in a 
short time frame. This is according to them.
    For this reason, Mr. Chairman, I ask that a letter sent on 
March 28th, 2013, from Deputy Assistant Treasury Secretary Don 
Graves, responding to SIGTARP's report, be entered into the 
record.
    Chairman Issa. Without objection.
    Mr. Cummings. I also think committee members would have 
benefitted greatly from hearing from the Special Deputy 
Inspector at Treasury who has direct oversight jurisdiction 
over this program, who has issued reports that appear to 
conflict with some of SIGTARP's findings.
    Now, my staff contacted the Deputy IG, but she also was 
unavailable to attend this hearing on such short notice. For 
this reason, Mr. Chairman, I ask that the IG's report on this 
program, which was issued in July 2012, also be entered into 
the record.
    Chairman Issa. Without objection.
    Mr. Cummings. I want to make it clear, Mr. Chairman, while 
we are entering these into the record, I agree with you, we 
need the testimony. But I want to make sure they are part of 
the record.
    Finally, GAO also has a statutory mandate to review this 
program's initial reports. Those reports have commended the 
implementation of this program. Unfortunately, we do not have 
anyone here from GAO either.
    I ask unanimous consent that GAO's reports on this program, 
which was issued in 2011 and 2012, also be entered into the 
record.
    Chairman Issa. Without objection.
    Mr. Cummings. I look forward to the testimony of Ms. 
Romero. But what we will hear today is a partial and incomplete 
assessment of what we have to deal with today. And I look 
forward, Mr. Chairman, to working with you to getting all of 
the witnesses that we need so we might thoroughly address this 
issue.
    With that, I yield back.
    Chairman Issa. I thank the gentleman. And we will extend a 
future invitation. So hopefully those who could not do it in 
eight days will be aware that they will be invited in the 
future and perhaps they can start working now.
    I also want to associate myself with your comments, this is 
a technical hearing. This is one in which no laws were broken, 
but in fact there was a more effective use of funds. And you 
talked about that very favorably, as I would agree. Then there 
was a less effective use of funds. It is the impact of that 
that I believe the IG will testify to.
    Members may have seven days in which to submit opening 
statements, or other extraneous material for the record. I 
would now like to welcome our witness, the Honorable Christy L. 
Romero. She is Special Inspector General for the Troubled Asset 
Relief Program and a returning guest, both in her current 
position and her previous position.
    Pursuant to the rules, if you would please rise and raise 
your right hand to be sworn.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth and nothing 
but the truth?
    [Witness responds in the affirmative.]
    Chairman Issa. Please be seated.
    Let the record indicate that the witness answered in the 
affirmative.
    Because this is the sole panel, we won't hit you with the 
light and say next witness. But I would appreciate it if you 
would summarize so we can get to questions. The gentlelady is 
recognized.

STATEMENT OF THE HONORABLE CHRISTY L. ROMERO, SPECIAL INSPECTOR 
   GENERAL, OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE 
                 TROUBLED ASSET RELIEF PROGRAM

    Ms. Romero. Chairman Issa, Ranking Member Cummings and 
members of the committee, it is my honor today to appear and 
present SIGTARP's report. I thank the committee for its 
commitment to oversight and transparency.
    TARP was intended to increase lending. But that did not 
happen and small businesses were left struggling. So Congress 
viewed SBLF as a fix to TARP, because it gave incentives to 
lend.
    Treasury officials said that banks could leverage each SBLF 
dollar to make loans in many multiples. As much as $8 to $10 in 
loans could be made for every SBLF dollar.
    TARP banks were allowed in SBLF but it was Treasury who had 
the authority to choose the banks that would be a good fit for 
SBLF and the amount they would get. Congress had one clear 
expectation: all banks were expected to increase lending.
    SIGTARP's audit is not about whether it was appropriate for 
Congress to allow TARP banks in SBLF. Our report is about 
whether Treasury chose the right banks, the right TARP banks to 
exit TARP and go into SBLF. Nearly 60 percent of TARP small 
banks applied for SBLF, while only 9 percent of small banks 
outside of TARP applied for SBLF. This should have been a 
warning sign that TARP banks were looking at SBLF as a TARP 
exit strategy.
    When Treasury was choosing banks, we recommended that 
Treasury not count the TARP capital in assessing the health of 
the bank. What we said was, it made little sense to take a bank 
out of TARP if it did not have the capital to lend. Treasury 
rejected our recommendation, and they gave two-thirds of the $4 
billion in SBLF dollars to TARP banks.
    Twenty-four TARP banks actually decreased their small 
business lending while in SBLF. These banks got $500 million in 
SBLF, but they decreased their small business lending by $741 
million. Where did the SBLF money go? It did not go to small 
businesses. Fourteen of these banks paid their shareholders 
dividends. At least two gave their CEOs a substantial raise, a 
raise of at least 40 percent. These banks got some of the 
biggest SBLF investments. At least 24 banks that decreased 
lending actually got some of the biggest dollars from SBLF. 
Nineteen got more than $10 million; ten got over $20 million 
from SBLF and two got well over $50 million from SBLF. But only 
12 banks in SBLF got over $50 million.
    This cannot be acceptable. The number of banks that 
Treasury should have allowed to actually decrease their small 
business lending in SBLF should have been zero.
    TARP banks had much to gain and little to lose from SBLF. 
There is no penalty for decreasing lending. The banks pay what 
they would have in TARP.
    We looked to see if the TARP banks that were chosen by 
Treasury increased their lending in many multiples of every 
SBLF dollar, just as Treasury had promised. We found that was 
not the case. Forty-two banks that Treasury gave only enough 
SBLF dollars to repay TARP increased their lending by only 25 
cents for every SBLF dollar. These 42 banks got one-quarter of 
the money in SBLF, they got $1 billion of the $4 billion in 
SBLF. TARP banks as a group collectively increased lending by 
$1.13 for every dollar in SBLF funds.
    The non-TARP banks that are in SBLF boosted their lending 
by three times that amount.
    The application process was essentially the same as it was 
for TARP, left over from TARP, which is how one banking 
regulator described it to us. It did not make sense to us that 
repeating the same TARP process would bring a different result.
    There is supposed to be one key difference in the 
application process. Congress put in a lending safeguard; the 
banks had to submit a plan on how they would increase lending 
to their banking regulator along with their application to 
SBLF.
    That lending plan should have separated the wheat from the 
chaff. It should have shown which banks best fit the program's 
goals, and which would fall short. The first problem, the 
plans, the template of which were designed by Treasury, were 
two pages long, not a lot of detail. Second problem, Treasury 
thought the banking regulators were assessing the plan to see 
if the lending was achievable, and the banking regulators 
thought that Treasury was doing it. This lack of accountability 
resulted in no adequate assessment of the lending plans. There 
is no consistent, meaningful review of the plans.
    Treasury did no independent analysis to determine if the 
lending could be achieved. They only did a check-the-box, 
superficial review to see if certain elements were included. 
This was a lost opportunity to ensure that the right TARP banks 
that could lend refinance into SBLF. There is another lost 
opportunity when for two years Treasury did not ask why 24 
banks decreased lending.
    What can be done? Well, we can't get back the lending that 
didn't happen to small businesses. But we can focus on the 
lending that can happen going forward with these banks. We 
recommended that Treasury help those banks come up with new 
plans to increase their lending in multiples, as was intended 
but Treasury rejected that. Unfortunately, it is the small 
businesses in our communities that have suffered and will 
continue to suffer unless there is meaningful lending to them.
    Thank you again for this opportunity, I am happy to respond 
to any questions.
    [Prepared statement of Ms. Romero follows:]

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    Chairman Issa. Thank you.
    I will recognize myself first. Could you put the form up on 
the screen, please? That is the form you are talking about?
    Ms. Romero. That is correct.
    Chairman Issa. So it looks like SAT, but with only two 
boxes, not four or five boxes to check. It is a zero or 1 
relationship. So all somebody had to do is give themselves the 
appropriate answer, a zero or 1, and they were done, is that 
right?
    Ms. Romero. It was very superficial, just check the box if 
the information was there.
    Chairman Issa. That is a million dollar plus decision on a 
one-page.
    I would like to show the video in context, not to mock or 
be unfair to the President, or the Secretary. But I think it 
puts in context the promise made versus what was kept.
    [Video shown.]
    Chairman Issa. Now, in fairness, I want to ask the question 
divided. Could the banks that were not coming out of TARP, in 
which this was net new dollars, at about 1 percent interest 
rate, very favorable interest rate, were the President's goals 
and the Secretary's statements confirmed?
    Ms. Romero. I think they are well on their way. This 
program takes a little bit of time. They are already at $3.45 
increased lending for every dollar.
    Chairman Issa. The goal of getting to $8 or $9 is still 
there, but essentially though, for every dollar we put in, we 
got $3 in lending and we got a net increase.
    So substantially, it did get out quickly and it did get out 
and do good where it went to banks that had net new dollars to 
lend, is that right?
    Ms. Romero. That is right.
    Chairman Issa. In your testimony, isn't the real problem 
here net new dollars versus taking a 5 percent interest rate 
and dropping it to 1 percent and saving the difference? That 
seems to be the difference between whether I take TARP, pay it 
back and then take money that costs me less, but have no net 
new dollars. That seems to be really what we are talking about 
here, is the use of funds was TARP and savings, rather than any 
kind of net increase.
    Ms. Romero. That is why we had recommended, when Treasury 
was choosing the banks that they not count that TARP capital. 
They needed the banks to stand on their own capital, just like 
every other bank applying would.
    Chairman Issa. So by paying back the TARP capital, they 
really not only were standing on their TARP capital, but they 
were replacing it with this money. So these were banks that 
because they still had TARP, in a sense they were underfunded.
    Ms. Romero. Well, for the banks that decreased lending, 
either maybe they weren't the right banks to get into the 
program, or Treasury could have given them a little more money 
to try to give them additional capital to leverage funding out. 
It was Treasury that made the decision to choose the bank and 
how much funding they would get.
    Chairman Issa. Were any of these banks banks that did not 
pass the stress test that essentially were either close to or 
below the initial mark?
    Ms. Romero. Well, no, because the stress test is for the 
largest banks and these are the smaller banks.
    Chairman Issa. So these banks could have been over 
leveraged, not over leveraged, that wasn't part of the test?
    Ms. Romero. No. Those were things that should have been 
looked at.
    Chairman Issa. So we could have had banks that got TARP 
money, needed TARP money and were on the edge, and as a result 
they just simply needed that, essentially leverage improvement, 
because what they got was, they got a lower interest rate which 
went right to the bottom line, 4 percent of a million dollars 
is $40,000 real benefit, is that right?
    Ms. Romero. If they don't increase their lending at all, 
then they just pay the same as they would in TARP, which is 5 
percent. But in TARP, after five years that jumps to 9. Even if 
you increase, if you are in SBLF, even if you increase by a 
dollar, you are not going to get that 9 percent jump.
    Chairman Issa. But if you decrease by $1.13, essentially 13 
cents of increase, you were paying 1 percent on that money, 
weren't you?
    Ms. Romero. Yes. It dropped down for each bank. Each bank 
is a little bit different. But basically there are these tiered 
stages. All you have to do is lend like a minimum of 2.5 
percent increase to get a drop. Some of these had very, very 
low thresholds. So to do increases of 2.5 percent, 5 percent, 
10 percent, for somebody that is a low bar. Everything is 
helpful, not everything is meaningful.
    Chairman Issa. But if I got several million dollars and I 
got out of TARP, I got an interest rate drop of some amount and 
I got to increase my pay as the CEO of a bank above what would 
otherwise have been limited by act of Congress?
    Ms. Romero. That is right, you escaped all of TARP's 
restrictions and luxury expenditures.
    Chairman Issa. I can see why a bank would do that.
    Let me just ask one last question. This audit question. I 
want to understand. You had a choice between Treasury doing it, 
essentially you had two places to audit, and each party thought 
the other was doing it. So in a sense there was no audit, is 
that correct, that you had one group that should have done it, 
or the other group that should have done it, each said, I 
thought the other was doing it? So what we had was a failure to 
audit that somewhere somebody didn't notice until you brought 
it up?
    Ms. Romero. Yes, it was very compelling to hear, as we 
interviewed each regulator individually, to hear that they 
thought the others had done it.
    Chairman Issa. Let me just ask a follow-up to that very, 
very quickly. Bank regulators do not ordinarily do this kind of 
audit except on the behest of Treasury. So in a sense, wasn't 
it Treasury's primary responsibility to see that the audit got 
done or to do it? It was not inherent of bank regulators audit, 
but it certainly is something Treasury could have tasked them 
with, or did it themselves?
    Ms. Romero. This is certainly Treasury's program and they 
take responsibility. But I do have to lay a little bit of 
responsibility on the banking regulators because the lending 
plans under the statute were actually given to them, submitted 
to them. They were probably in the best position. But 
ultimately it was Treasury's job and responsibility to make 
sure that it happened, because they were running the program.
    Chairman Issa. Thank you.
    The ranking member is recognized.
    Mr. Cummings. Thank you very much. I want to make sure, 
first of all, I want to thank you for your report. But I want 
to make sure that we have, I guess in Steve Harvey's language, 
the rest of the story. Because there are different ways to look 
at the same information.
    But I want to go back for a moment. How many banks are we 
talking about and how many decreased their lending?
    Ms. Romero. There were 137 TARP banks that were in SBLF. 
Twenty-four decreased the lending. Now, 24 may sound small. But 
when you look at the dollar amount, it is a large amount. These 
were some of the largest. You had a couple banks, two banks in 
that group, for example, that got more than $50 million and 
only 12 banks in SBLF got more than $50 million. So you have 10 
that got over $10 million, 19 that got over $10 million. So 
while 24 may look like a small number, the significance is how 
many that they got $500 million under the program.
    Mr. Cummings. I believe very strongly, there are two words 
that I use in my office most often, effectiveness and 
efficiency. It sounds like that that is what we are going to. 
But around here, we have a tendency, Ms. Romero, sometimes to, 
we get reports or whatever and then certain things are pulled 
out and they become the headlines. And a lot of times, we have 
what I call collateral damage, of people who did not do 
anything wrong. As a matter of fact, did everything right, and 
don't always get the credit. Usually if there is any kind of 
correction, it is on page 33 at the bottom paragraph.
    So I try to make sure that we have the entire story here.
    Now, the title of today's hearing is Backdoor Bailout. And 
the implication is that there is something wrong with small 
community financial institutions obtaining funds under this 
program and then refinancing some of their TARP obligations 
back for bailout. That is the title of the hearing. See, you 
have to understand the climate we are operating in here. It is 
a little different than your office.
    So let's set the record straight. When Congress passed the 
Small Business Jobs Act of 2010, we explicitly authorized this. 
Let me read exactly what the law says, we did this, the 
Congress did this. The law says, ``The Secretary shall issue 
regulations and other guidance to permit eligible institutions 
to refinance securities issued to Treasury under the CBCI and 
the CBP for securities to be issued under the program.''
    Ms. Romero, the CBCI and the CBP are programs under TARP, 
is that right?
    Ms. Romero. That is correct.
    Mr. Cummings. So Congress expressly authorized these small 
community banks to refinance their TARP funds, is that right?
    Ms. Romero. That is correct. That is not what our report is 
about.
    Mr. Cummings. Well, I am asking the questions. So far, 
these banks have been doing a terrific job in paying back these 
funds. As I understand it, all of the banks that receive funds 
under this program are repaying them appropriately and not one 
of them has missed a quarterly dividend payment. According to 
Treasury's most recent estimate, the American taxpayers are set 
to make a profit of $50 million on this program.
    Now, I would imagine you would say that we could have done 
even better, is that right?
    Ms. Romero. No, I don't think that is the point.
    Mr. Cummings. Okay, but do you agree with what I have said 
so far?
    Ms. Romero. I have not looked over the whole program.
    Mr. Cummings. You haven't looked at how much money we are 
making, the profit?
    Ms. Romero. No. What I looked at is, just like I looked for 
the largest banks, how TARP banks exited TARP, I looked to see 
how TARP banks exited TARP through this program. So that is 
what I was looking at. That is what we were focused on.
    Mr. Cummings. I got you. So let me ask you about a report 
that GAO issued after evaluating this program. GAO's report 
said this: ``Treasury's process for evaluating SBLF applicants 
included several levels of review and input from multiple 
sources to help ensure that applicants were treated 
consistently and that banks approved for funding were 
financially viable and could repay the investments.''
    Do you disagree with GAO's report, that finding?
    Ms. Romero. Well, I do not know if GAO looked at the 
analysis, and if there was any independent analysis on the 
lending plans. But I can tell you that what we found is in the 
application process there was no independent analysis of the 
lending plans by Treasury to see if the lending was achievable. 
That would have applied for all banks.
    I also don't know, I don't believe GAO looked at the 
difference between lending at TARP banks and lending at non-
TARP banks
    Mr. Cummings. Mr. Chairman, before you do that, please, may 
I request unanimous consent to have the same amount of time 
that the Chairman had, which is about an extra 1.5 minute? 
Okay. I saw you putting your light on.
    Mr. McHenry. [Presiding] Sure, I ask unanimous consent the 
gentleman has an additional minute and 15 seconds. Without 
objection, so ordered.
    Mr. Cummings. Thank you very much.
    Ms. Romero, the program also has been audited by the 
Special Deputy Inspector General within the Treasury Inspector 
General's office. All of these offices are very reputable 
offices. The Deputy IG issued a reporting finding that the 
Department ``consistently approved institutions that would 
likely meet their financial obligations to the SBLF program.'' 
Do you agree with the Deputy IG?
    Ms. Romero. Again, we were able to do something that maybe, 
then maybe some others. If you just look at Treasury and their 
application process, you might get one view of it. It was when 
we looked at Treasury and every single one of the banking 
regulators together, because they were all part of the process, 
that we saw where each thought the other had responsibility for 
analysis of the lending plan. So I am not exactly sure that the 
Treasury IG could see that. That is why it was so important, as 
we were looking at how TARP was being exited, that we were able 
to go in and interview those people, look at their documents in 
terms of the regulators. That is where things fell through the 
cracks, is in the lending plan.
    Mr. Cummings. Thank you very much.
    Mr. Chairman, that is why it is important that we get the 
Treasury folks in here. Because you get one piece, but you have 
to have the whole picture. It is like trying a case with just 
one side.
    Mr. McHenry. The gentleman's time has expired. The chair 
has been generous with him. And just to note for the record 
again, Treasury was invited and given ample opportunity to 
participate. They refused, even to the point where their 
existing report would be allowed to be a testimony in response 
to Ms. Romero's report and the SIGTARP's report.
    With that, I will now recognize myself for five minutes. 
Ms. Romero, under the scenario that the ranking member painted, 
would these banks have paid more back under TARP than under the 
SBLF back to the Treasury, back to the taxpayer?
    Ms. Romero. Yes. For the banks who did not, who decreased 
their lending, or did not significantly increase their lending, 
yes.
    Mr. McHenry. Therefore, this profit would have been a 
greater profit had they not been moved into the SBLF?
    Ms. Romero. They would have paid more in dividends.
    Mr. McHenry. Thank you. So with this line of this question 
here, the pledge was that these SBLF banks would lend more to 
small businesses than TARP banks. Did that prove true?
    Ms. Romero. I am sorry, would the banks increase their 
lending to small businesses?
    Mr. McHenry. Right.
    Ms. Romero. Are you asking if they would have increased 
their lending to small businesses in TARP?
    Mr. McHenry. Well, no, compare a TARP bank to a Small 
Business Lending Fund bank.
    Ms. Romero. I apologize. Yes. In the Small Business Lending 
Fund, there is no question you were supposed to increase your 
lending. You certainly weren't supposed to take the money and 
decrease your lending.
    Mr. McHenry. Okay. So then the question is, the performance 
of these SBLF banks, these Small Business Lending Fund banks, 
right?
    Ms. Romero. Right.
    Mr. McHenry. The statute requires the banks to submit a 
small business lending plan, correct?
    Ms. Romero. Yes.
    Mr. McHenry. So there was a requirement in statute that the 
Treasury demand this plan. Did Treasury deny a single bank or 
any bank, or what is the number of banks that Treasury denied 
for not having an adequate small business lending plan?
    Ms. Romero. None. There were some who did not include 
information so didn't pass the check-the-box. They would then 
resubmit that information. So no bank was denied funding based 
on their lending plan.
    Mr. McHenry. Based on an insufficient or inadequate small 
business lending plan?
    Ms. Romero. I will say it this way, based on a lending plan 
where the bank could not achieve the lending increases that 
they proposed.
    Mr. McHenry. So what was the level of scrutiny by Treasury 
of having a small business lending plan in order to be in the 
Small Business Lending Fund?
    Ms. Romero. It was not adequate at all. They did no 
independent analysis to see if the lending was achievable.
    Mr. McHenry. So you are saying that the performance did not 
meet the statute required by Congress and signed by the 
President?
    Ms. Romero. Yes. You can't have banks in the program who 
decrease their lending.
    Mr. McHenry. Interesting. So the idea that we could 
actually take banks out of TARP and TARP oversight with a 
greater return to the Treasury and by the way, the taxpayer, to 
take them into a different plan that has the very politically 
popular term, Small Business Lending, included in it, that is 
interesting. So if you think about the returns based on this, 
TARP banks lent out how much per dollar in the Small Business 
Lending Fund?
    Ms. Romero. Total TARP banks increased their lending by 
$1.13 for every SBLF dollar.
    Mr. McHenry. So what is the comparison here? How can I 
compare it? Is that good?
    Ms. Romero. Non-TARP banks increased their lending by $3.45 
for every SBLF dollar. So it is three times the amount.
    Mr. McHenry. Okay. Because clearly, Congress put this in 
statute, the President touted. Chairman Issa showed this video. 
Clearly, this can't be the case.
    Ms. Romero. This is absolutely the case.
    Mr. McHenry. So you are telling me a non-participating bank 
actually increased their small business lending more than a 
participating bank in the Small Business Lending Fund?
    Ms. Romero. Yes, and not only should it have been obvious 
that the money would be used to repay TARP, we warned Treasury 
that this would happen, that this could happen. We made a 
recommendation in September 2010 that said, when you choose the 
banks, don't count the government capital in determining the 
health of that bank. Because they have to have capital that 
they can leverage into loans.
    Mr. McHenry. Certainly. So can the Treasury require under-
performing banks to actually develop plans?
    Ms. Romero. Absolutely.
    Mr. McHenry. Have they?
    Ms. Romero. No. We made the recommendation in the audit and 
they rejected it.
    Mr. McHenry. And in response to your audit, do they say, 
thanks so much, thanks for letting us know, we are going to 
shape up, we are going to do this?
    Ms. Romero. No, unfortunately they took a very defensive 
posture. They focused on the lending that has happened in the 
program, when that is sort of like in HAMP, focusing on the 
homeowners who have gotten help but not focusing on the 
homeowners that should have gotten help, that were intended to 
get help. That is what we are trying to do. We are trying to 
say, don't give up on these banks now. There is still an 
opportunity to help small businesses with these non-TARP banks. 
So work with them to do that. But that was rejected.
    Mr. McHenry. My time is expired, but you said the word 
HAMP. So that of course raises my ire based on that poor 
performance and what it has done to folks it was intended to 
help.
    Now we will recognize Mr. Clay of Missouri.
    Mr. Clay. Thank you, Mr. Chairman.
    Let me thank the witness for being here today. When 
Congress authorized $30 billion to establish the Small Business 
Lending Fund, we intended to provide an incentive to community 
banks nationwide to increase their small business lending. 
Banks were eligible to apply for SBLF as long as they met the 
legal requirements. Banks that were not paying their TARP 
dividends were not eligible to apply.
    Ms. Romero, your report raises a concern about the fact 
that only 935 community banks applied to SBLF when there are 
approximately 7,000 community banks that could have been 
potential applicants. Can you please elaborate on that number 
and why there were so few?
    Ms. Romero. Sure. The number is about 9 percent of 
community banks that were not in TARP applied, while about 60 
percent of community banks in TARP applied. Why that is the 
case, I can't elaborate on, sir. I wish I could. But all I have 
looked at in this program is how TARP banks exited TARP. So I 
haven't looked at, I don't have jurisdiction over the whole 
program to say, how was it marketed in the beginning or what 
was set up in the beginning. I am only looking at the decisions 
that were made to take banks out of TARP, because I am the 
Special Inspector General for TARP.
    Mr. Clay. I heard you mention that some of these banks 
repaid TARP with SBLF funds.
    Ms. Romero. Yes.
    Mr. Clay. How did they? They got TARP money then they took 
SBLF, and decided that they were going to repay the money they 
owed taxpayers, basically, with this money. Is that a shell 
game?
    Ms. Romero. Well, that was okay. Congress allowed that. And 
we are not taking issue with that, that TARP banks could use 
the SBLF money to pay off TARP. That is Congress' call. What we 
are saying is, it was Treasury's call as to choose the right 
TARP banks to do that, and to also determine how much money 
they would give them. For example, they could choose the banks 
that would best lend, and it would have been obvious to them 
that if the banks did not have any additional capital to lend, 
that just giving them enough to pay TARP would not leverage 
into the multiples of loans, which is a basic premise.
    Mr. Clay. Well, your report says SIGTARP found that 42 TARP 
banks that received only enough SBLF funds to pay off TARP and 
lend out significantly less than they received in SBLF funds, 
increasing lending only by 25 cents for each dollar of these 
funds. Speaking of Missouri, give me some examples of banks. 
Can you name any Missouri banks?
    Ms. Romero. Yes. In the 24 who decreased lending, there are 
two Missouri banks who decreased lending while in SBLF. Do you 
want me to name them?
    Mr. Clay. Yes, please.
    Ms. Romero. Liberty Bancshares decreased lending by 20 
percent. This is Small Business Lending. Fortune Financial 
Corporation, which decreased lending to small businesses by 13 
percent while in SBLF.
    Mr. Clay. Wow. Okay. GAO surveyed banking institutions to 
learn why they had not applied for SBLF funding, and reported 
that a primary reason was a lack of interest in the program. A 
respondent's most common reason for not applying to the program 
was a lack of demand for small business loans. Do you disagree 
with GAO's findings?
    Ms. Romero. I very much respect GAO and the other IGs. I 
don't disagree with the findings, but I think it is interesting 
because there should not have been any difference in loan 
demand based on whether you were a TARP bank or not. So to see 
60 percent of TARP banks apply to SBLF and only 9 percent of 
the non-TARP banks, if there is not enough loan demand then 
there is not enough likely loan demand on the TARP banks, too. 
And that sends up a warning flag to me that some banks may have 
been looking at it as a TARP exit strategy.
    Mr. Clay. Thank you so much.
    Ms. Romero. Thank you.
    Mr. McHenry. I thank my colleague. And I recognize my 
colleague and neighbor from North Carolina, Mr. Meadows.
    Mr. Meadows. Thank you, Mr. Chairman.
    Ms. Romero, thank you so much for your illuminating and 
very detailed report. Thank you to your staff as well for being 
so well prepared.
    As we start to see some of this come out, I appreciate your 
willingness and your thoroughness in trying to get the full 
picture. So many times what we do is we look at one segment of 
government and we say, okay, they are performing up to their 
standards, we look at another, they are performing up to their 
standards. But when we put them together, we find that the 
result, as in this case, is not something that helps small 
businesses at all.
    I can tell you that my colleague opposite, talking about 
the GAO standards, saying there was not a demand for small 
business loans, as a small business owner for over 28 years, I 
can tell you there was never ever more of a demand or a need 
for that within the community banking system as was evident in 
this particular time. So I would certainly disagree with their 
assessment of this particular time.
    You mentioned that roughly only 9 percent I think of 
community banks not in TARP applied for the SBLF funds. Isn't 
this in itself evidence that this was not an effective way to 
stimulate lending? When we see it, it becomes more of a 
backdoor for TARP than it is for lending to small businesses.
    Ms. Romero. Certainly for several TARP banks it was a way 
to get out of TARP, absolutely. Whether it is indicative of how 
they marketed the program, I don't really know how they 
marketed the program. This isn't something we looked into, 
because we were looking at the TARP banks. But it does raise a 
flag as to whether there was the right reach-out to get the 
right banks in the program.
    Mr. Meadows. I think in your testimony you talk about the 
fact that you did exhaustive research, I believe, on 32 
applications, SBLF applications. And from that, for almost all 
of them, I think 29 out of 32 applications, there was no 
evidence of any oversight or investigative nature on the part 
of Treasury to look at a detailed plan on how it would increase 
lending? Is that correct?
    Ms. Romero. That is correct, and it actually goes broader 
than that. When we asked the questions and did interviews, and 
we looked at all the documents, we were told by the program 
director for SBLF that Treasury did no independent analysis to 
determine whether the lending in the lending plans was 
achievable, because they thought that was the bank regulators' 
jobs.
    We found no independent analysis, so his statement was 
borne out by the documents. Then on top of that, we looked in 
detail at 32 and found that there was almost zero mention of 
the lending plans.
    Mr. Meadows. Okay, so from a legislative standpoint, they 
were required to come up with a lending plan, but yet they 
didn't do it and we still gave them the money?
    Ms. Romero. That is correct.
    Mr. Meadows. In the private sector, would we call that 
fraud?
    Ms. Romero. I don't know whether it is fraud here. I am 
also in charge of a criminal law enforcement agency, so that is 
not something we have looked at. But I would say it was very 
disturbing that there was this massive lost opportunity in 
determining which banks were the right banks to exit TARP and 
go into SBLF.
    Mr. Meadows. So best case scenario, it was a gross 
mismanagement of oversight in terms of the implementation of 
this process?
    Ms. Romero. It absolutely should have happened. There could 
have been three levels of review to make sure that these banks 
could have achieved the lending plan. It could have been at the 
subsidiary bank regulator, it could have been at the bank 
holding company regulator, which is the Federal Reserve, which 
actually, the bank holding company got the money, and it should 
have been at Treasury.
    Mr. Meadows. I have just a little bit of time remaining, so 
you talk about 24 institutions that actually decreased lending.
    Ms. Romero. That is correct.
    Mr. Meadows. But at the same time, some of those 
institutions were paying better or higher bonuses and salaries 
and pay-outs to executives. Would you say that was systemic 
throughout or just isolated?
    Ms. Romero. So, 14 paid dividends to their shareholders. 
That is a problem. That should never have happened.
    Mr. Meadows. So instead of making loans to small 
businesses, they paid dividends to shareholders, instead of the 
money that they borrowed for that particular cost?
    Ms. Romero. Absolutely. And not all those banks are public, 
but we looked and we saw at least two instances where they gave 
their CEO a raise.
    Mr. Meadows. Lastly, is there any way that we can say, 
where we are today, Treasury, you can fix it? Do you see a 
willingness on their part to fix it going forward?
    Ms. Romero. I am a glass half full kind of gal. I would 
like to see small businesses get the benefit, if we are going 
to have the tradeoff of getting these banks out of TARP, I 
would like to see small business increase. So we put our heads 
together to try to figure out how to do that, and said, why 
don't you work with the banks. It is not too late to try to get 
new small business lending in the future.
    That is the prudent thing to do, it is not difficult to do. 
But Treasury rejected that.
    Mr. Meadows. I thank the chairman for his patience, and I 
yield back.
    Mr. McHenry. Ms. Duckworth of Illinois.
    Ms. Duckworth. Thank you, Mr. Chairman.
    Ms. Romero, what I see here for me is a basic missed 
opportunity to get lending out to small businesses. Time and 
again, my small business owners in my district have said that 
lack of access to capital is one of the greatest challenges 
they face. And here we have a program that could get out as 
much as $30 billion and we only use $4 billion of it.
    And the most fundamental point for me is a real lack of 
opportunity. It is opportunity wasted. I am really disappointed 
that Treasury did not accept the invitation to be here, and 
they could not be here today. I would have liked to hear both 
sides of the story.
    From their letter to you to Don Graves, his response to 
some of your criticism was that the former TARP banks did 
report a medium small business lending increase of 18.4 
percent, and that 84 percent of those banks that participated, 
former TARP banks that participated actually increased their 
small business lending, and 73 percent of those increased their 
small business lending by 10 percent or more.
    You had said that one of the problems with this program is 
how Treasury chose how much money they would give banks, and 
that if they only gave banks just enough to cover their TARP 
repayment, that is what they went with. Do you think that 
perhaps part of the issue here is that the lending criteria was 
simply too rigorous, other than the other way around, which is 
what you suggest?
    Ms. Romero. It is a really good question. It could go 
either way. If the banks really had no intention to lend and 
really had no additional source of capital to lend, then they 
shouldn't have been in the program at all. But for the ones who 
submitted the lending plan, there should have been more 
rigorous criteria, which is to really look at that.
    And I appreciate the increases in lending that happen, 
because any increase in small business lending is helpful. But 
not all increases in small business lending have a meaningful 
impact. So remember, we are talking about banks that have very, 
very low lending levels. So even increasing it 10 percent, 
while it is helpful, it is not really a high bar. And that is 
why the goal of SBLF was not a 10 percent increase. That is 
just how you determine your cost of capital. The goal is a 
really basic principle of lending, that you take that money as 
capital and then you leverage off that loan in multiples. That 
is what we were looking for, and that is what we haven't seen 
happen.
    Ms. Duckworth. Thank you.
    I would like to yield the remainder of my time to the 
ranking member.
    Mr. Cummings. Thank you very much. I thank the gentlelady 
for yielding.
    I agree with Ms. Duckworth. I want to see every single 
small business get the money that they need. And there is a 
tremendous demand in my district. It is, we are handicapped in 
this hearing, because we have reputable people who seem to 
disagree with you. I wish we had them here, I really do. 
Because some of the accusations are quite strong. And everybody 
on both sides of the aisle knows that I am a great defender of 
people's reputations.
    Did you ever have a chance to talk to Don Graves? Did you 
talk to him? He is in charge of the program.
    Ms. Romero. Yes.
    Mr. Cummings. You did talk to him?
    Ms. Romero. We coordinate with him, his office. We also 
coordinate with GAO and the Treasury Inspector General. I don't 
think anyone is in disagreement with what we are saying.
    Mr. Cummings. Well, let me just tell you, I am just looking 
at a letter, and this is why I am going to be pushing hard to 
get Treasury in here. Because again, we want to make sure our 
constituents benefit. When we have, well, let me read this. Mr. 
Graves said in his letter of March 28th, he says here ``The 
report ignores,'' he is talking about your report, ``ample 
evidence that Treasury conducted a serious review of 
applicants' lending plans. For example, of the banks and 
SIGTARP's sample that received SBLF funding, Treasury rejected 
as inadequate over 30 percent of the initial plans submitted by 
these institutions.''
    Now, as I sit here and I am listening, I didn't hear 
anything about that. What is going on there?
    Ms. Romero. Sure. I am actually really glad you gave me an 
opportunity to talk about that. The serious review they did was 
to take the form that I included in my testimony and determine 
whether 12 elements were included in the plan. If something was 
missing, or if there was something that was deficient on their 
face, like they had to at least say they were going to lend out 
in the same amount of money they got in SBLF, if the amount was 
too low, Treasury would send it back.
    That was their review. The banks would then just resubmit 
it with the information or change the number without any 
justification.
    So there was a review, and I am not saying there wasn't a 
review. But what we are saying is it was superficial. What we 
were looking to see is, did you do an analysis or anything to 
determine whether the lending increases that they proposed in 
the plan was achievable. And we were told no by Treasury, we 
did not do any independent analysis because that was the 
regulators' jobs. And we were told by the regulators, no, we 
did not consistently do an analysis because that was Treasury's 
job. Our job was to look at safety and soundness.
    There were a few instances where some of the bank 
regulators, particularly OCC, actually took a look at that. But 
like the FDIC, who regulated 69 percent of the TARP banks who 
applied, that wasn't their protocol. It wasn't their process. 
And they said Treasury knew we should be doing that.
    So while Treasury did a review and rejected some things on 
a check-the-box basis because the box wasn't checked, they 
never did an independent analysis to determine whether the 
lending increases could actually be achieved. That is what 
these lending plans are for. When Congress put this safeguard 
in, they wanted to make sure that we wouldn't have a repeat of 
TARP, that the banks would actually lend the money out.
    So Treasury's SBLF program director told us twice, we did 
no independent analysis, that was the regulators' job because 
the statute required the lending plan to go to the regulator, 
that was borne out by the documents, that was borne out by 
everything we saw. Then when we went and talked to the 
regulators and the regulators said that was Treasury's 
responsibility, that was borne out by the documents that the 
regulators gave us.
    So what we are saying is, we are not saying there was no 
review. We are saying the review that happened wasn't a 
sufficient, adequate assessment to determine whether the banks 
had the wherewithal or could actually achieve the lending 
increases that they had proposed.
    Mr. Cummings. Thank you very much.
    Mr. Gosar. [Presiding] Thank you.
    I am going to recognize myself for five minutes.
    Ms. Romero, with this checklist for the banks be similar to 
what scrutiny businesses would go through for a lending 
program?
    Ms. Romero. No, and it should be.
    Mr. Gosar. Not even close, is it?
    Ms. Romero. It shouldn't be how the government makes its 
investments.
    Mr. Gosar. Wow. Would you consider $1.13 cents return 
versus $1 investment a good portfolio?
    Ms. Romero. No, and I wouldn't consider taking $500 million 
and then not lending off of it a good portfolio, either.
    Mr. Gosar. It is pathetic. I am a businessman, and I 
happened to be a dentist for 25 years, so the return on 
investment is pathetic.
    Mr. Geithner, when the Secretary talked to Congress in 
regard to this program, did he misrepresent this program to 
Congress? Specifically in that clip, he talks about a return on 
investment of lending of $8 to $10 for every dollar invested. 
That is clearly not what transpired here.
    Ms. Romero. I think the intention was there. I think the 
problem was in the execution.
    Mr. Gosar. So let me get this straight. Thank you. So 
execution really poor again. It seems we have a recurrent theme 
here with the Secretary of Treasury that we have very poor 
oversight. Maybe we mean well, but we have very poor exercise 
of the facts. Is it not financial aspects are about facts and 
about details, is it not, Ms. Romero?
    Ms. Romero. The facts and the details are incredibly 
important here.
    Mr. Gosar. Secretary of Treasury and we can't get those 
right.
    Let me ask you what is fair. If a bank made a dividend 
purchase, do you think it is fair that the taxpayer should get 
it back? And how about the CEOs, getting those paid? Shouldn't 
we get that back? That should be fair, right?
    Ms. Romero. I absolutely agree with that. That never should 
have been allowed. It should not be allowed in the future. We 
have made a recommendation to the banking regulators to never 
allow it again and they have rejected that recommendation.
    Mr. Gosar. Wow. So the ranking member just talked to you 
about a letter from Mr. Graves about a rigorous, serious review 
of these protocols. That checklist to me is hardly a serious 
review. It seems like we go over and over again pointing the 
finger, the blame game, so that we don't know who is 
responsible for this. But it really lies with Treasury, does it 
not?
    Ms. Romero. It is their program.
    Mr. Gosar. I know you went in depth a little bit with Mr. 
Graves' letter with the ranking member. But for moms and pops 
out there, that is real ill-intentioned, right?
    Ms. Romero. Treasury is absolutely responsible in picking 
the right banks to go in. And when Congress says, well, we 
don't want a repeat of what happened with TARP, we are lending 
an increase, we are going to fix is, and our safeguard to make 
sure that they lend is to require a lending plan, when there is 
no meaningful, consistent review of that lending plan by the 
government, then the intent of Congress is thwarted in putting 
that safeguard in.
    Mr. Gosar. I am glad you brought that up, the intent of 
Congress. Do you believe that this bill was well-vetted?
    Ms. Romero. I don't have any idea on how Congress did that.
    Mr. Gosar. It seems to me that this was very ill-vetted, 
because the application you always look at outcomes. What was 
the intended course and the outcomes. This is a failure by any 
stamp of the imagination. And we didn't vett this bill very 
appropriately. This was rushed through in Congress. We actually 
had a Secretary of Treasury misrepresenting the plan, at least 
giving it expectations that there was no intentions of follow-
through. Because what I see the Secretary of Treasury doing is 
explaining one thing to Congress and then following through 
with nothing, absolutely nothing.
    Wait a minute. You made a comment that said that the 
numbers match the TARP numbers, did you not? So there must have 
been very interesting dialogue behind the scenes, right?
    Ms. Romero. The 42 banks only got enough SBLF dollars to 
pay off TARP. It should have been obvious that the banks then 
did not have capital to lend off of. And beyond being obvious, 
we sent a letter to Secretary Geithner September 2010, when 
they were picking the banks, warning of this, and saying, you 
can't switch a bank out of TARP into SBLF, it doesn't make 
sense, if they don't have the capital to lend but for the TARP 
capital. And that was rejected.
    Mr. Gosar. The fox in the henhouse, just really 
interesting.
    Just one last question, I know I am running out of time. Do 
you feel there is adequate capital for small business out in 
America right now?
    Ms. Romero. No.
    Mr. Gosar. What is our number one biggest area of growth? 
Is it large business or small business?
    Ms. Romero. Certainly I agree with Congressman Duckworth, 
small businesses really need help here. That is why we made the 
recommendation to try to help, that Treasury should even now 
try to help these banks come up with a new plan to increase 
lending to small businesses. That is what we are looking at, we 
are looking at it from the small business perspective.
    Mr. Gosar. Thank you very much, Ms. Romero. I would like to 
acknowledge the gentleman from Nevada, Mr. Horsford, for five 
minutes.
    Mr. Horsford. Thank you very much, Mr. Chairman. And thank 
you, Ms. Romero, for being here today.
    I have said before that I am not a defender of every 
Federal program. I am a defender of my constituents who rely on 
Federal programs to meet the needs in our respective 
communities. And when I talk to my small businesses, their 
number one issue is access to capital. So it is incredibly 
frustrating when we hear about these programs and the very 
entities that are responsible for them aren't present to talk 
about them. I want to say for the record I find that 
inappropriate.
    I also feel that we need more input from the very people 
that these programs are supposed to benefit. I would love to 
hear from small businesses who both got loans or didn't get 
loans. I would love to hear from some of the community banks. 
Many in my district, it was the community banks that were 
trying and are trying to work with small business in my area, 
more so than some of the larger banks that don't even return 
people's calls.
    So Ms. Romero, my question is, the fact that the Small 
Business Lending Fund program is different than TARP, that it 
is an incentive-based investment program, correct?
    Ms. Romero. Yes.
    Mr. Horsford. So under statute, Congress directed that 
funds be made available to community banks and other small 
financial institutions, including former TARP recipients, with 
an incentive for participants to increase small business 
lending, right?
    Ms. Romero. Yes.
    Mr. Horsford. So the bottom line is that more banks, that 
the more banks increase their loans to small businesses, the 
less they pay in dividends. And if recipients fail to increase 
their small business lending over time, that the price of those 
dividends goes up as well?
    Ms. Romero. The best way to do it for the TARP banks is to 
do a comparison to what they would pay in TARP to what they pay 
in SBLF. If they don't increase at all, there is no penalty to 
the SBLF banks. They pay the exact same that they would in 
TARP. So they get to escape all of the TARP restrictions on 
executive compensation, luxury expenditures, that sort of 
thing, and they just pay the same amount.
    If they increase their lending by a dollar, they are going 
to pay less in a dividend than they would in TARP.
    Mr. Horsford. So that is the basic way in which the program 
is structured?
    Ms. Romero. Yes.
    Mr. Horsford. So there is an indication, though, in your 
report on April 9th that you raised a concern about this 
process, stating ``If the former TARP banks fail to increase 
lending, there is no meaningful penalty.'' Was that your 
statement?
    Ms. Romero. Absolutely. That is what I just explained. 
Because they get all the benefits of leaving TARP but there is 
no penalty on them. So for the 24 banks that decreased their 
lending, nothing is happening with them. No one is standing up 
other than SIGTARP and saying, this should not be allowed in 
the program. And they are paying the same amount that they 
would under TARP. So there is no penalty for them to decrease 
their lending.
    Mr. Horsford. And if banks don't pay back the taxpayer in a 
timely manner, the taxpayer return could be even more 
substantial, is that correct?
    Ms. Romero. Yes, and you have to look at if those banks had 
stayed in TARP, then if some of these banks, not just these 24, 
but if we look at some of them that only lent an incremental 
amount and got a dividend break, if they had stayed in TARP 
they would have paid more to taxpayers in their dividends. So 
what we are saying is, we will take any increase in lending to 
small businesses, not every increase has a real meaningful 
impact on the small businesses that you talked about.
    Mr. Horsford. I agree, and I think that ultimately, that is 
what I want to get to, when I look at this chart that was 
provided to us. The West, the State that I represent, Nevada, 
was second to last in small business lending in the region of 
the Country. So I want to know why businesses in my area didn't 
get the same opportunities to loans, and if that was due to 
failure on the part of Treasury, on the implementation of this 
program. I expect them to be able to answer my questions as a 
member of Congress, so that I can go back and tell my 
businesses this is how this program works. And if you qualify, 
pursue it. Because people need what they are offering, which is 
access to capital.
    Thank you very much, Mr. Chairman.
    Ms. Romero. I agree.
    Chairman Issa. [Presiding] Thank you, and thank you for 
your insightful questions.
    Very briefly, I want to make the record straight from the 
standpoint of a couple of things. First of all, this program 
has now ended. So we are in the payback phase of no net new 
money. So if I understand from a corrective action, we really 
can't pull back the money and redistribute it at this point or 
force higher lending, is that correct?
    Ms. Romero. That is correct. But I think Treasury should 
still try to work as hard as they can to try to increase 
lending. Not through money.
    Chairman Issa. I appreciate that. One of the impressions I 
got through this hearing was that the President was not well 
served in the implementation. I think on both sides of the dais 
you saw that. Certainly 42 banks simply rotated from being 
covered under stringent rules, bipartisan rules of 
accountability and pay and luxury benefits. And they got out of 
it. They borrowed enough to pay off their loan, so they didn't 
care. They just wanted one source of money replacing another. 
And it was pretty transparent, when you borrow exactly what you 
need to get out of TARP, right?
    Ms. Romero. Right. And some of them paid less of a dividend 
than they would in TARP.
    Chairman Issa. So we lost money through this maneuver.
    Ms. Romero. On those banks, yes.
    Chairman Issa. Now, if I have my figures correct, this 
program was a $30 billion program, sizeable program.
    Ms. Romero. Yes.
    Chairman Issa. And $4 billion actually went out, is that 
correct?
    Ms. Romero. Yes.
    Chairman Issa. And $2.1 billion went to these basically 
TARP banks that had little or no return.
    Ms. Romero. Yes, $2.1 billion went to pay off TARP.
    Chairman Issa. Went to pay off TARP. So the real tragedy 
here is one, the money wasn't used nearly to the level 
authorized; two, it went roughly half to paying off TARP. I 
might remind all of us that $2.1 billion is not a lot of money 
into TARP, so it is a relatively small group of banks that got 
the benefit compared to the total dollars of TARP.
    The lesson learned that I want to ask, and I will send this 
over to Financial Services hopefully in a joint report, is, if 
I hear you correctly from your report, one, we need to insist 
that the term plan be more than a one page check off the box. 
We need to find a way to do that in the legislative language 
and guidance.
    Two, when we authorize $30 billion, there has to be some 
expectations of reasonable goals, achievement, because this $30 
billion, and the gentleman from Nevada made a good point, that 
$30 billion, if another $26 billion of it had gotten out there, 
it would have made a huge difference at even a three times 
multiple as to the availability of funds to small business.
    Lastly, as far as I can tell, we should have had strings on 
TARP banks, now, that may never happen again. But we could say 
any bank which had an alternate government loan, from simply 
paying off one loan with another loan. That should have been 
explicitly net new capital, otherwise there could be no 
expectation that actual net loans would change.
    Ms. Romero. Absolutely. I would agree with all of that.
    Chairman Issa. And I guess the one more thing I got out of 
the hearing today is defined point of accountability. The 
language of the legislation was pretty clear. But it was 
certainly possible for Treasury to say as they said to you, we 
thought the regulators would do it, while regulators said, we 
had no specific guidance, and they shirked, if you will, 
proactive responsibility.
    Did I cover the points here today?
    Ms. Romero. Absolutely.
    Chairman Issa. I am going to yield to the ranking member 
for his closing. But I think what you have been helpful for 
here, which is unusual, is this is not a big scandal. There is 
no criminal activity. But there is a series of lessons learned 
for legislative language that you cannot oversight and you 
cannot delegate and hope for the best in the areas I just 
outlined. Would that pretty much summarize what you would like 
us to take away from today's hearing?
    Ms. Romero. Absolutely. Although I also think that the 
fault doesn't all lie with the language in the statute. I think 
when there is an intention in the statute and when there are 
statements being made to Congress about the intent, that needs 
to be followed through, and the agencies who are responsible 
need to take responsibility for that. There needs to be 
accountability. What we said is there needs to be better 
coordination and communication.
    We have with TARP, we have with SBLF, and we have with a 
number of things going forward after the crisis a government 
that doesn't want to be stovepiped or siloed, they want to work 
together. What we are saying is, when you work together, 
improve your coordination and your accountability and improve 
your communication. That recommendation was denied. And we 
don't see how that can be denied, and it shouldn't be denied.
    Chairman Issa. I guess I will put in a small pitch in 
closing for the Data Act, something that has been passed out of 
this committee previously and something that would provide 
real-time transparency to oversight, both in the Administration 
and obviously it would have allowed Congress to be aware of 
these figures sooner, and the Inspector General's office, I 
might add.
    So that will all end up in our report. Mr. Cummings, do you 
have a closing statement?
    Mr. Cummings. Thank you very much.
    First of all, Mr. Chairman, I want to associate myself with 
what you just said. It is very frustrating for my constituents, 
about a year or so ago we had a forum in my district with the 
Federal Reserve for small business people, probably about a 
year and a half ago. All these small businesses came out. Their 
number one concern was access to capital. They had been doing 
well.
    The interesting thing is that a number of them said, look, 
we have opportunities, but we can't get the funds to do the 
job. We can't even get line of credit. And then to hear a 
program that has certain intended results not get those results 
is sad.
    Treasury says that the reason why they could not be here is 
they only had eight days notice. I really would have liked to 
have heard from them. But one thing that needs to go forth from 
this hearing is that we can do better. And that is what you are 
saying.
    Ms. Romero. Yes.
    Mr. Cummings. Sometimes I think, Ms. Romero, we get caught 
up, and I have seen this in government in various ways, in a 
culture of mediocrity. Certain agencies get to a point where 
they could do better, but for some reason they don't. So I 
guess when you have, and this is what I want your answer on, so 
you think the law, the way it was drawn up, the law itself, 
could have been clearer, or you just think that it was clear 
enough and there was just some disregard or both, disregard of 
doing what was necessary to get the full intended results? Do 
you follow my question?
    Ms. Romero. Yes, absolutely. Congress' intent is clear in 
this statute.
    Mr. Cummings. So it is not the statute?
    Ms. Romero. I think this is the point I was trying to make, 
there is a lending plan that is a safeguard. But you have to 
take responsibility when you are Treasury or the banking 
regulators who are looking at that lending plan to make sure 
that Congress' intent is met.
    I think what the chairman was saying was, if they can't 
take accountability to do that, then maybe Congress has to lay 
it out more clearly. But they shouldn't have to. Congress 
shouldn't have to. Treasury and the regulators have to take 
accountability. When we look at our work, I know some people 
think that an IG's job is to criticize, but that is not what we 
do. We are trying to make these programs better. We are trying 
to get help to people who need help from TARP, small businesses 
that needed help from these programs. We are trying to say, if 
you took a bank out of TARP that would pay less in dividends to 
taxpayers, that tradeoff is fine and good if there is a 
meaningful impact on small businesses and they get the benefit 
of that.
    So all we are trying to do is say, how do we get there? 
Let's remove the obstacles that didn't allow us to get there in 
the first place, and let's move forward. When Treasury takes a 
defensive posture and just defends what they did and doesn't 
talk about what they should have done or still can do, it is 
not really an effective response to an Inspector General's 
report. Unfortunately, that is typically what has been 
happening with our reports.
    We are trying to work together with them, to make sure that 
the intent of Congress is met. We are not trying to criticize 
for criticism's sake. We are trying to make this better. That 
is what is frustrating.
    Mr. Cummings. I have to tell you, since I have been in 
Congress, over 16 years, that is one of the best statements I 
have ever heard, what you just said. I really mean that. 
Because you are right, that is what it is all about, how do you 
make sure that things are done in an effective and efficient 
manner. It is simple.
    I tell folks all the time, it is so important tome that 
government functions properly. My constituents need government 
to function like government is supposed to function. The 
statement you just made about the role of the IG, I totally 
agree with you. Hopefully, Treasury is listening to this and 
for future times maybe we will have a better situation.
    Thank you very much, and we thank your entire staff.
    Ms. Romero. Thank you so much.
    Chairman Issa. I want to thank again all of you for your 
service and for being witnesses here today. We stand adjourned.
    [Whereupon, at 11:00 a.m, the committee was adjourned.]

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