Community Bankers Association of Illinois

CBAI-Backed Small Business Jobs Act Goes to President
September 23, 2010

The Community Bankers Association of Illinois applauds the United States Congress for passing the Small Business Jobs Act (Jobs Act) of 2010 (H.R. 5297). This legislation includes the $30 billion Small Business Lending Fund (SBLF) which was a top CBAI policy priority. The United States House originally passed this measure on June17th by a vote of 241 to 182. The United States Senate passed its own version of the bill on September 16th in the form of a substitute amendment by a vote of 61 to 38. Finally, today the House approved the Senate version of the bill by a vote of 237 to 187. Now, the bill goes to the President who is expected to promptly sign the legislation into law.

CBAI was an early and enthusiastic supporter of the Small Business Lending Fund. At a press conference in Chicago in February, CBAI leadership bankers joined with Senator Durbin and small business owners to announce this important legislative initiative. This spring, CBAI members visited Washington, D.C., on several occasions to voice support for H.R. 5297. We are confident this legislation will encourage additional small business lending, fuel jobs creation, and help create economic stability.

The SBLF provides a capital option for community banks to expand small business lending. The $30 billion fund could be leveraged to provide as much as $300 billion of credit. Community banks are well-positioned to leverage the SBLF and have established relationships with small businesses in their communities to get credit flowing quickly.

Under the $30 billion fund, interested banks with less than $1 billion in assets could receive capital investments up to 5 percent of their risk-weighted assets, and those with between $1 and $10 billion in assets could receive up to 3 percent. The structure of the program contains incentives for community bank recipients to lend. Banks that increase their small business lending will get a lower dividend rate, as low as 1 percent for banks that increase their lending by 10 percent. Banks that do not increase their lending will pay a higher dividend rate, as high as 7 percent. CBAI joined with 29 state community bank trade associations to support the SBLF in a July 21st letter to Senate Leaders Harry Reid (D-NV) and Mitch McConnell (R-KY).

Unfortunately, the Loan Loss Amortization (LLA) proposal was not contained in the final version of the legislation. The proposal would have allowed banks to amortize commercial real estate loan losses for up to 10 years for regulatory capital purposes only. This practice would not have distorted banks' GAAP-prepared financial statements and would have enabled many community banks to weather the current crisis. Community banks were not seeking a taxpayer-funded bailout, but only asking for the time to recover from the effects of the mortgage meltdown, financial crisis, and great recession that they did not cause. House leadership determined the LLA measure should not be considered due to regulator opposition. CBAI will continue to urge the passage of this proposal using other legislative vehicles.

Key provisions of the Jobs Act include:
    A $30 billion capital lending fund for interested community banks to support greater small business lending.
    Increased SBA loan guarantee levels, larger loan size limits and reduced borrower fees.
    Decreased Subchapter "S" Corporation holding period to mitigate the built-in-gains tax.
    Increase in small business immediate expensing up to $500,000 over two years and 50% bonus depreciation.
    Enhanced small business export promotion and SBA trade finance incentives.

Additionally, both the House and Senate specifically emphasized that Congress intends that the capital funds accessed through the SBLF be considered Tier 1 capital for all eligible financial institutions.

With the enactment of this legislation, CBAI will encourage Treasury and the regulators to quickly and fully implement this program as intended by Congress.

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