[Congressional Record Volume 156, Number 115 (Monday, August 2, 2010)]
[Senate]
[Page S6580]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           SAVING WEAK BANKS

  Ms. SNOWE. Mr. President, I ask unanimous consent that the article 
titled, SPIN METER: Program risks $30B to save weak banks,'' published 
on August 1 by the Associated Press, be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

               [From the Associated Press, Aug. 1, 2010]

           Spin Meter: Program Risks $30B To Save Weak Banks

                           (By Daniel Wagner)

       Washington.--People are fed up with bank bailouts that risk 
     taxpayer billions. The government's apparent solution: call 
     them something else.
       Congress is at work on a new program that would send $30 
     billion to struggling community banks, in a process similar 
     to the huge federal bailouts of big banks during the 
     financial crisis. This time, money is more likely to 
     disappear as a result of bank failures or fraud.
       Two weeks ago, President Barack Obama declared an end to 
     taxpayer bailouts when he signed a sweeping overhaul of 
     financial rules. In his weekly radio and Internet address on 
     Saturday, he described the new bailout program as ``a common-
     sense'' plan that would give badly needed lending help to 
     small-business owners to expand and hire.
       At its core, the program is another bank rescue. Some 
     lenders need the bailouts to survive. Others could take the 
     bailouts and crumble anyway. That's what happens when banks 
     run out of capital--the money they must keep in case of 
     unexpected losses. Banks with too little capital can be 
     shuttered to protect the taxpayer-insured deposits they hold.
       Or, under this proposal, many could get bailouts. The new 
     money would be available to banks that are short on cash. 
     It's supposedly reserved for banks deemed ``viable.'' But 
     regulators won't consider whether banks are viable now. 
     They'll envision how strong a bank would be after receiving a 
     fresh infusion cash from taxpayers and private investors. If 
     the bank would become viable because of the bailout, the 
     government can make it happen.
       ``This is a below-the-radar bailout for community banks,'' 
     said Mark Williams, formerly a bank examiner with the Federal 
     Reserve. ``What we lack here is oversight and true 
     accountability.'' He said the potential costs are far greater 
     than the program's impact on small businesses. The change for 
     them would barely be noticed, he said.
       Small banks are struggling partly because the economy is so 
     weak. For banks in the hardest-hit areas, it can be nearly 
     impossible to recover once too many loans sour.
       Yet the bill would require that banks be protected against 
     ``discrimination based on geography.'' It says the money must 
     be available to lenders in areas with high unemployment.
       Such banks are ``only as strong as the loans they make in 
     their communities,'' said Williams, now a finance professor 
     at Boston University.
       Also, the government knows far less about these lenders 
     than about Wall Street megabanks. Many community banks are 
     overseen by state regulators struggling under budget cuts and 
     limited expertise. Many are ill-equipped to monitor banks 
     during a crisis, Williams said.
       The administration says the bill is not a bailout, but a 
     way to spur lending to small businesses and bolster the shaky 
     economic recovery. The idea is that businesses want bank 
     loans, but banks don't have enough money to lend. And they 
     say the program has to include riskier banks in order to 
     work.
       ``When banking groups have advocated for measures that were 
     about saving or bailing out struggling banks and not spurring 
     small business lending, we have strongly opposed those 
     proposals,'' said Gene Sperling, a senior counselor to 
     Treasury Secretary Tim Geithner who has met with community 
     bank lobbyists on the issue.
       Sperling said Treasury rejected proposals to further lower 
     the bar for which banks are considered ``viable'' or to let 
     banks delay accounting for commercial real estate losses.
       Some banks will have an easier time granting loans after 
     receiving bailouts. But Federal Reserve Chairman Ben Bernanke 
     and others have questioned whether the problem is lack of 
     capital, or if there simply aren't enough creditworthy 
     borrowers.
       The administration's haziness about whom the program 
     benefits has fueled comparisons to the $700 billion bailout 
     known as the Troubled Asset Relief Program, or TARP. A few 
     important differences make this bailout riskier.
       The bailouts that started in 2008 were subject to oversight 
     by a special watchdog. Neil Barofsky, who heads that 
     inspector general's office, recently saved taxpayers $553 
     million by stopping the Treasury from mailing a check to a 
     failing bank accused of fraud.
       Under the new law, it's not clear the money would have been 
     saved. The new bailouts have the same investment structure, 
     size limits and approval process as the old ones. Yet they 
     aren't subject to Barofsky's oversight. His office has staff 
     and procedures in place to monitor banks for bailout fraud--
     resources that cost taxpayers millions.
       The new law creates an office that duplicates those 
     efforts, and Barofsky's supporters say that's an effort to 
     silence one of Treasury's loudest critics.
       There's another reason banks want to join the new program: 
     It will save them money.
       Assuming they increase lending modestly, the banks will pay 
     lower quarterly fees to Treasury. If lending falls, their 
     fees will rise. But the banks still will pay less than they 
     would to private investors, experts said.
       Banks that were short on cash weren't even eligible for 
     money from the $700 billion financial bailout passed in 2008. 
     Yet limiting it to healthy banks was no guarantee the money 
     would be safe.
       A few bailed-out banks have failed. One-sixth of them were 
     behind on their quarterly payments to Treasury at the end of 
     May, according to an analysis by University of Louisiana 
     finance professor Linus Wilson.
       ``The problem is, they're not really picking healthy 
     banks,'' Wilson said.
       Legislation to put the new program in place ran into a 
     roadblock in the Senate last week. Further action isn't 
     expected until September, after lawmakers' summer break.
       The measure has been the subject of a months long lobbying 
     push by small bankers. Disclosures show that community bank 
     bailouts have been the most common topic of Treasury's 
     bailout meetings with lobbyists over the past 10 months.
       The trade groups insist that smaller banks are not 
     necessarily riskier because they weren't behind the 
     speculation that nearly toppled Wall Street.
       History suggests that's not true. Most of the 268 banks 
     that have failed since 2008 were community banks.
       The proposal has drawn little notice from a public weary of 
     bailouts for Wall Street, auto makers, insurers and 
     homebuyers.
       Wilson said that shows how well it's been sold.
       ``If you put small business in the name, people will like 
     it, and if you put banks in the name no one will like it--but 
     the money is going to banks, not small businesses,'' he said.

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