WASHINGTON — Responding to frustrated lawmakers who have yet to see the Obama administration give out any funds from its $30 billion small business lending program, Treasury Secretary Timothy Geithner said Wednesday the fault lay with the banking regulators.
Appearing before the House Small Business Committee, Geithner acknowledged that Treasury was "surprised" and "disappointed" that the Small Business Lending Fund was taking longer to implement than originally expected. But he said banking regulators had to ensure the banks that received the funds were healthy, a requirement that Congress made when it passed the law nine months ago.
"We only look at applications after they make it through that process," Geithner said. "That process is taking longer than I think anybody had expected … We're moving as quickly as we can, but again we have a responsibility to the taxpayers to be careful. We're very close to moving ahead."
This was the second time in as many months that a senior Treasury official has been called to answer for the embattled SBLF program.
Democrats and Republicans grilled the secretary about why the $30 billion lending initiative has taken so long to get off the ground and when the money may finally be distributed.
Deputy Assistant Secretary Don Graves told the Senate Small Business Committee last month that Treasury expects to distribute funds by the end of June, and a handful of companies announced this week that they had been approved by the Treasury Department to participate.
The law requires Treasury to consult with a bank's primary regulator before approving an application.
Still, lawmakers complained on Wednesday that the program has failed its mission to quickly inject capital into small banks so they may lend to small businesses.
Rep. Nydia Velazquez, the committee's top Democrat, said she disagreed with the way the program was structured. But her concerns were sidelined by the program's supporters, who insisted the policy should be put in place quickly so money could begin to go out the door, she said.
"Here we are more than nine months after passage and not one single investment has been made," Velazquez said. "It could be several months before SBLF dollars make their way through banks and into the hands of entrepreneurs."
When pressed by Rep. Jaime Herrera Beutler, R-Wash., about why some "credit-worthy" banks haven't heard back from Treasury on the status of their applications, Geither shot back.
"We'll make that judgment as quickly as we can," he said. "But none of you, I hate to say it, will be in a position to make a judgment independently or on their own about whether they are viable or not. That's a judgment that you need to leave to the checks and balances that we have set up."
Several lawmakers also pointed out that interest in the program appears tepid at best.
As of Wednesday, Treasury had received 869 applications for approximately $11.6 billion in funds, little more than a third of the funds available under the $30 billion fund.
The program is only open to healthy banks with less than $10 billion of assets. It excludes banks that are on or have been on the FDIC's problem bank list within 90 days; are under dividend restrictions; or have missed more than one dividend payment under the Troubled Asset Relief Program.
Geithner defended participation in the program, saying many of the country's 8,000 banks either aren't eligible to participate, or don't want or need to because they have enough capital to lend.
"What this program tries to do is reach a subset of the banking system that can't raise capital on their own, but are still viable institutions," he said. "That's not going to be the bulk of banks, but it's go to be a meaningful fraction of banks."
Graves also asked Geithner to explain the divide between businesses that say they can't get loans and banks that say they have money to lend, but are afraid of being penalized by regulators.
Geithner said it's typical that regulators will impose stricter conditions following a crisis.
"After a period of maybe being too loose, they tend to overdo it," he said. "I think it's very important … that the federal banking agencies continue to try to give their examiners more guidance, so they don't make these problems unnecessarily worse by overdoing it."