By David Hess

WASHINTON (May 19, 2010) -- President Obama's high-priority plan to inject some capital into community banks for small business loans cleared a House panel Wednesday and should be on the floor there by this time next week.

By a party-line vote [Vote 7], H.R. 5297 -- the "Small Business Lending Fund Act of 2010" -- was reported out of the House Financial Services Committee by a 42-23 margin, with majority Democrats mustering all hands on deck to stave off a solid front by opposition Republicans. Backed by a strong lobbying campaign of the community banking industry, House Financial Services Chairman Barney Frank, D-Mass., predicted after the vote that the House would quickly adopt the $30 billion package and send it to the Senate, despite GOP efforts to portray it as a "junior" version of the controversial TARP bailout legislation in 2007-08 that conservatives maintain is an unwarranted intrusion of the federal government in private economic affairs.

Under the bill, the Treasury Department would provide seed money to local banks which would be directed, in turn, to pump it into loans for small businesses. The aim is to flesh out the supply of investment capital that many small businesses complain is locked up in bank vaults whose directors are leery of lending until the economy regains better footing in the receding ice of recession. The bill authorizes a Treasury revolving fund would be established from which the banks would borrow the money from Uncle Sam at low-interest rates and reel it out in loans to small businesses that qualify for the lending. Eventually, under the president's plan, the businesses would repay their loans to the banks and the banks would repay the seed money provided by the Treasury. Like the TARP program, in which big national banks got hundreds of billions in bailout funding (a great deal of which has been paid back with interest), the president expects the small business loan plan to pay for itself and to gin up more jobs to boost the economy.

In the day-long committee debate, Republicans -- led chiefly by Reps. Jeb Hensarling, R-Texas, and Scott Garrett, R-N.J., -- scorned the plan as a chimera that could end up losing money at taxpayers' expense and dig a deeper deficit hole in the federal budget. "This is the TARP program all over again by another name," Hensarling said, "simply another $30 billion bank bailout the taxpayers will end up paying. Garrett offered an amendment to change the title of the bill to "TARP Junior Act of 2010," but it was rejected by voice vote, after Frank branded it as an "amendment purely to score political points".

Another Garrett amendment to alter the effective date of H.R. 5297 until the day after TARP expires in October "so that we don't have two similar programs running simultaneously" was defeated 37-19 [Vote 1].

An amendment by Rep. Gary Peters, D-Mich., to enable states to run their own credit programs for small businesses from U.S. Treasury loans totaling up to $2 billion, was approved 39-23 [Vote 2]. A Hensarling amendment that would have subjected any program losses to be offset, under Pay-Go rules, by spending cuts was rejected, 41-23 [Vote 3], after Frank insisted that "this bill doesn't authorize any spending that's not paid for." Hensarling argued in vain that despite the House's Pay-Go rules, Congress has routinely exempted key legislation from offsets. On another attempt to link the new lending program to TARP, Rep. Tom Price, R-Ga., proposed to put TARP's special Inspector-General in charge of auditing it. Asserting that the Treasury I-G is vested with that power in the lending bill, Frank opposed the amendment and it went down, 42-23 [Vote 4].

An amendment by Rep. Judy Biggert, R-Ill., to provide a half dozen tax breaks to businesses, including a provision that would maintain the current capital gains advantage for wealthy hedge fund managers, was defeated, 42-23 [Vote 5], after Frank insisted that his committee lacks the jurisdiction to handle tax legislation. The chairman mocked the Republican effort to treat favorably the sizable incomes of hedge fund officers whose tax rates are less than those of many ordinary wage-earners. A final Hensarling amendment to require that banks certify to the Treasury that they lack "adequate capital" to extend loans to creditworthy borrowers was rejected 42-23 [Vote 6].

Several other amendments were either adopted or rejected by voice votes. Those accepted would require monthly reports to Treasury and Congress on how invested funds are spent by businesses (Rep. Mary Jo Kilroy, D-Ohio); bar loans to community banks on the FDIC's "problem list" (Rep. Brad Miller, D-N.C.); require the I-G to examine states' and cities' ability to carry out the state-run loan program (Rep. Michelle Bachmann, R-Minn.); require money returned to the federal government from lenders to be used to pay down the national debt (Rep. Eric Paulsen, R-Minn.); set a 10-year limit on when loans to banks must be repaid (Rep. Kenny Marchant, R-Texas); include "rural" banks in the loan program (Rep. Ruben Hinojosa, D-Texas); require banks to set up customer education programs to help them better understand banking services and risks of borrowing (Rep. Joe Baca, D-Calif.); deny loans to banks that have missed dividend payments (Hensarling); exempt small businesses from tax liability for proceeds from tax relief if they reinvest it in their businesses (Paulsen); upgrade underwriting standards used for rating loans to banks (Hensarling); require biannual reports from Treasury to name banks and business borrowers benefitting from loans (Frank).

Amendments defeated include a Hensarling proposal to prevent Treasury from recycling repaid TARP loans into other programs; another Hensarling amendment requiring banks to post on their premises a notice that they accepted capital funding from Treasury.

Roll call vote to be added later.