September 15, 2011

The Hon. Valerie B. Jarrett
Senior Advisor to the President
The Hon. Gene B. Sperling
Director, National Economic Council
The White House
Washington, DC 20500

Re: Small Business Lending Fund

Dear Ms. Jarrett and Mr. Sperling:

We were pleased to see that on August 31 the Treasury Department approved another 50 depository institutions for participation in the Small Business Lending Fund.  The SBLF is a well-conceived and potentially beneficial program to promote small business lending and create jobs, which is at the top of everyone’s agenda at this critical point in our economy.

However, we are concerned that time is running out on this program as we approach the statutory termination date of September 27, 2011.  There are hundreds of other applicants still awaiting approval.  Out of a total of 926 institutions that applied, only 130 have received funding as of August 31.  Treasury has turned down more than 40% of the applicants.  A number of minority banks are among those that have either not yet received funding or have been rejected.  The program held great promise when President Obama first announced it on February 2, 2010, and it still has great promise if a minor change in the administration of the program is made quickly.

We believe participation in the program could be greatly improved by rescinding the belated and unanticipated policy change announced by Treasury in late May that disqualifies applicants solely because the institution has agreed with their primary regulator not to pay a dividend without prior regulatory approval.  The statute did not bar these applicants from participating.  Rather, Treasury erected this barrier on its own accord and has applied it to many otherwise qualified institutions.

Treasury applies this policy even when the primary federal banking regulator has recommended an institution for SBLF funding, the institution has previously paid all of its TARP dividends with the primary regulator’s approval, the institution’s financial condition has stabilized or improved, and the institution is considered well-capitalized and profitable.  We understand that some banking regulators, including the Federal Reserve, have identified for the Treasury Department companies it believes meet the primary requirements of the programs despite having dividend restrictions in place.  In fact, a letter dated August 23, 2011 from Patrick M. Parkinson, Director of the Fed’s Division of Banking Supervision and Regulation to Camden Fine, Executive Director of the ICBA, stated “We have identified for the Treasury department companies that we believe meet the primary requirements of the program despite having ‘dividend restrictions’ in place.”

Announcement of the new policy set off a rush by applicants to request their bank regulators to remove or waive any dividend prior approval requirement for SBLF purposes.  Treasury gave applicants until August 1, 2011 to certify that applicants had no such restriction in place or to seek a waiver.  Removal of regulatory dividend approval requirements has been difficult if not impossible for applicants to obtain from their primary bank regulators since federal banking agencies typically reconsider these requirements only after scheduled bank examinations are completed.

We are seeking your assistance in allowing companies in this situation to be considered for participation in the SBLF program.  If Treasury does not rescind this policy, then many otherwise qualified applicants will be unable to participate.  We request that you work with Secretary Geithner and the Treasury Department to reopen the application process for those banks that were excluded from participating in the program solely because of a prior approval requirement.

If these worthy applicants, supported by their primary bank regulators, do not receive funding under SBLF, they will need to reassess their lending plans and possibly reduce their loan portfolios leaving small businesses, including those in America’s inner cities, with significantly less credit.  This would be the exact opposite of what the Small Business Lending Fund sought to accomplish.

Thank you for your consideration.


Charles Thayer
American Association of Bank Directors

cc: The Hon. William Daley, Chief of Staff