WASHINGTON – The Obama administration announced Monday that the 21 largest banks receiving government money must report monthly on how much lending they do to small businesses.

All other banks getting taxpayer help are being asked to report quarterly on small business loans. Even banks that are not taking government funds are being told by the administration to “make an extra effort” to increase small business lending.
 
The announcement was part of a broad package aimed at boosting the credit available to struggling small business owners that President Barack Obama and Treasury Secretary Timothy Geithner were unveiling in an East Room ceremony. The White House figures that making billions in federal loans available to small businesses was one way to address misgivings over the widely unpopular bailout program, which has sent hundreds of billions to large financial institutions like Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. with few strings attached.

The rescue program has appeared to do little so far to loosen credit, the lifeblood of the American economy.

In brief comments Monday morning with Geithner before the official announcement, Obama called small businesses “one of the biggest drivers of employment that we have.” He said he had pressed his economic team to specifically help owners of small businesses and get credit flowing to them again, and he called the newest initiatives only a first step.

The measures includes $730 million from the stimulus plan to immediately reduce small-business lending fees and to increase the government guarantee on some Small Business Administration loans to 90 percent. The government also is taking aggressive steps to boost bank liquidity with up to $15 billion aimed at unfreezing the secondary credit market.

Often primary bank lenders will seek to sell the SBA loans in the secondary market, allowing them to use the proceeds of the sale to make new loans to other small business owners, but skittish investors have been staying away. Under the administration’s initiative, the government will step in to buy these loans to help unlock the frozen credit market, using money from the recently passed bailout package in the range of $10 billion to $20 billion, one official briefed on the plan said.

While the SBA typically guarantees $20 billion in loans annually, new lending this year is on track to fall below $10 billion, according to the administration.

The reporting requirements for financial institutions receiving government bailout funds are the first, the White House said.

The plan comes amid Republican efforts to cast doubt about Obama’s ambitious budget, in particular the proposal to raise taxes, starting in 2011, on individuals earning more than $200,000 and on households earning more than $250,000. Those provisions also hit small businesses.

Geithner also ordered the Internal Revenue Service to issue a series of new rules for temporary but significant tax breaks, meaning that small businesses:

-That earn up to $15 million will be allowed to claim losses for the past five years in the current tax year;
-May write off up to $250,000 in investments this year.
-Can reduce estimated tax payments to 90 percent of the previous year’s filing.
-Are allowed to take larger depreciation deductions within the first year of property purchases.
-And will see 75 percent of capital gains excluded for those who invest in small businesses.

WASHINGTON  – The official in charge of the Treasury’s $700 billion bailout program for the financial sector warned Congress that the government should not force banks to make loans that bankers may deem risky.

Neel Kashkari, interim assistant secretary for financial stability at Treasury, told a congressional oversight panel Wednesday that bad lending practices were at the root of the financial crisis and cautioned Congress not to “micromanage” institutions that receive government funds.

“However well-intended, government officials are not positioned to make better commercial decisions than lenders in our communities,” he said.

Kashkari, who was put in the job under the Bush administration, testified amid growing impatience among members of Congress who want to see evidence that the taxpayer money is actually loosening credit markets.

Lawmakers on a subcommittee of the House Oversight and Reform Committee voiced frustration with what they said was a continued lack of clarity from the Treasury on how banks were spending money they have received under the Troubled Asset Relief Program. Under the program, the federal government has used more than $300 billion in taxpayer money to infuse financial institutions with cash, much of it by purchasing preferred stock and other assets.

Subcommittee chairman Dennis Kucinich, D-Ohio, complained that at least three financial institutions that have received TARP money – Citigroup Inc., Bank of America Corp., and J.P. Morgan Chase and Co. – have made foreign investments.

“If the banking system is in serious enough trouble to require massive amounts of federal support, shouldn’t that federal support be channeled to the domestic economy?” Kucinich asked.

The misgivings were bipartisan.

“We don’t know if $300 billion has changed anyone’s behavior,” said Rep. Darrell Issa, R-Calif.

Kashkari said Treasury has used the TARP’s capital purchase program to invest an average of $16 million in 489 banks. He said the program was making about 30 new investments a week. At the same time, several banks have indicated a desire to pay back the federal funds early, citing the number of government restrictions that the Obama administration has attached to the capital injections and the
fear that other limits may be added.

The Raleigh Democrat has co-sponsored a bill that would create a one Financial Product Safety Commission instead of 10 agencies that oversee lending now, the N&O reports.