Small Business Lending

Floor Speech

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Mr. MERKLEY. Mr. President, thank you, and thank you to the Senator from Louisiana and your clarion call to go into battle, to fight for small businesses in our Nation.

We all know small businesses are the job-creating factories in America and that if we do not go to battle for our small businesses, that, indeed, we will be in this recession for a very long time, which will be certainly bad for our small businesses, it will be bad for all the citizens who would be employed by those businesses, and will certainly be bad for all those trapped in the deep, long recession. So I thank the Senator for her leadership.

Also, I would like to thank very much Senator Cantwell for her outspoken advocacy on behalf of small businesses and on behalf of this effort to provide liquidity; to my colleague from California, Senator Boxer, who got involved very early as a partner in creating a plan to help address this fundamental challenge.

That challenge is the small businesses are having their credit lines cut and they are going to their community banks and their community banks are observing that, unfortunately, they are at the leverage maximum allowed under the rules so they cannot do additional lending.

So here we have banks that would like to lend. We have small businesses that would like to borrow and be able to put more people to work, to seize opportunities in our economy. But they cannot do it because we have this
malfunction. This malfunction is the capitalization of community banks that enables them to lend more.

So this provision addresses that malfunction. It provides a mechanism to recapitalize community banks that are healthy. That then enables them, under the existing leverage requirements, to provide additional lending to small businesses across America.

Well, this wins on every level. First, it makes money for the taxpayer. CBO estimates it will bring in $1 billion of revenue, and that is not including the additional revenue from personal income taxes on the folks who get jobs because small businesses put people to work. It does not include the additional revenue from the small businesses themselves and their share of taxation.

So thriving individuals with jobs and thriving small businesses will create additional feedback to our Treasury, helping us to attack the deficit, in addition to the billion dollars that CBO estimates.

A couple questions have been raised about this strategy. One question that has been raised is: Well, will not community banks possibly take the additional capitalization and then sit on the funds? Indeed, that is a concern that has been addressed in the design of the program. The program says community banks will pay a dividend back to the Treasury of 1 percent if they provide the full leverage of lending to small businesses and 7 percent if they do not and somewhere in between if they are in between.

So you have a 7-to-1 provision. That is a huge incentive for the community banks to follow through and seize the lending opportunities, not sit by and wait for a sunnier day, if you will.

A second question has been: Well, is it possible that banks in this situation will make loans that they should not make? The answer there is no as well because the bank's profit is on the line. These are not guaranteed loans. If these loans fail, the banks would suffer. So this utilizes our community banks' wisdom and knowledge about what merits additional capital and what does not.

This is why this public-private partnership is powerful. It is powerful because it uses the expertise of the community banks, powerful because it puts people to work in small business, powerful because it allocates capital to the places where the small business entrepreneurs and the banks see that there is an opportunity to grow the business and to grow this economy.

A third concern has been that these funds might go to community banks that are in trouble. To address that issue, this program requires for the community banks to be healthy, as rated under a rating called the CAMELS rating.

Each letter in the term ``CAMELS'' stands for a component of the analysis of the health of the community banks--C for capital, for example; M for management; L for liquidity, and so forth. Healthy banks get the opportunity to increase their leverage and assist small businesses so they can thrive and put people to work. And we as a nation can find a path out of this deep dark recession.

I will wrap up my comments there and say this is the sort of commonsense effort to address a key chokepoint in the economy that we are expected to address by the citizens. It is right for the taxpayer. It is right in terms of alleviating the deficit. It is right for putting people to work. It is right for Main Street America. I urge my colleagues to join us in getting this done.

I yield the floor.

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