The Impact of the U.S. Government Programs [T]roubled [A]sset [R]elief [P]rogram and [S]mall [B]usiness [L]ending [F]und on Small-to-Medium

Enterprises and Their Stakeholders

Group Term Project PresentationBy

Duy Anh Bui, Anh Thi Van Tran, Lam Lei, M. Scott Green

Course Name: GGU Contextual Environment of Business, Mgt. 345

Course Instructor: Ms. Wendy Giblin

Presentation Date: April 2, 2012

I. Statement of Proposal - Treatise

II. Terminology and Description: SBA, SBLF, EESA, TARP

III. Selected Course Concepts and Principles Used In Analysis Report

IV. Key Drivers of Economic Activity…

V. Historical Perspective

VI. Pre- and Post-2008 Financial Crisis Comparative Analysis: Government, Banking and Financial Institution, and Business

VII. Final Assessment and Conclusion

VIII. References

IX. Q & A

Table of Contents

Statement of Proposal - Treatise

The purpose of this treatise is to define and describe the interrelationships between two U.S.

governmental programs, both prodigies of the Small Business Administration (SBA) program - Troubled

Assets Relief Program (TARP) and Small Business Lending Fund (SBLF) - and the various small-to-mid-

size banking institutions that participated and determine how those relationships affected and impacted

small-to-medium enterprises (SMEs) and their stakeholders. The report analysis was conducted during a

five-year pre- and post-financial crisis period (financial crisis of 2008) spanning from the beginning of

Year 2006 to the end of Year 2011, with considerable emphasis given to the time immediately following

the financial crisis.

Macro and Microeconomic

Impact of Government Intervention:

TARP and SBLF

Society

BusinessBanking

h t t p : / /y o u t u . b e / W p L X h b u e Q v 0

Small Business Administration (SBA)

Terminology and Description: SBA, SBLF, EESA, and TARP

Key Course Concepts and Principles

Congressional Legislation and Policy:

Securities and Exchange Commission

Federal Deposit and Insurance Corporation

Glass-Steagall Act of 1933

Federal Reserve Acts

Dodd-Frank Wall Street

Reform and Consumer Protection Act of 2010

Congressional Legislation and Policy:

Sarbanes-Oxley Act of 2002

Depository Institution Deregulations and Monetary Control Act of 1980

Garn-St. Germain Depository Institutions Act of 1982

American Bankruptcy Institute

The “Volcker Rule”

Key Drivers of Economic Activity and Sustainability: Government, Banking, and Small Businesses

U.S. Government:

Description and Functionality: Constitutional Republic with limited powers

Centralized State-Controlled versus Free Market Capitalism

Regulation vs. Deregulation vs. Reregulation

Two Key Pecuniary Policies for General Public: Fiscal and Monetary

Important Government Interventions and Events during the past century

U.S. Banking Industry:

Description and Role: Depository, Facilitator, Transacting Agent of Country’s Monetary Capital

Types of Banks and Interconnecting Relationships: Centralized, Commercial, and Investment

Banking

Key Historical Events

U.S. Small Business Industry:

Description and Economic Presence:

Historical Accounts How Economic Conditions Affect Businesses

From Depression and War… | Milestones in the SBA’s Development1932

President Hoover creates the Reconstruction Finance Corporation (RFC) to lend to businesses of all sizes hurt by the Depression.

1958

Under the Small Business Investment Company program, the SBA begins regulating and helping to fund privately owned ventured capital firms.

1980

The SBA’s Small Business Development Center program links states and the federal government to deliver free campus-based training and counseling to entrepreneurs.

1942

Congress forms the Smaller War Plants Corporation to help small businesses participate in wartime production.

1964

The SBA’s Equal Opportunity Loan Program begins providing start-up loans to applicants below poverty line. Also, Score program is created to offer volunteer mentoring of entrepreneurs by retired business execs.

1996

Congressional Republicans try but fail to kill the agency.

1953

Congress creates the Small Business Administration (SBA) to take over the small-business-related functions of the RFC.

1967

President Johnson orders the SBA to direct federal contracts to businesses located in economically distressed urban areas, creating the 8 (a) Business Development programs.

2007

Investments in small businesses by SBA-backed Small Business Investment Companies reached a cumulative total of more than $50 billion.

1954

The SBA makes its first small-business loans.

1972

For the first time, the SBA records a one-year total of more than $1 billion in small-business loans.

2012

President Obama proposes combining the SBA with five other agencies.

Intend – stimulate entrepreneurial growth and ease access to capital

Actions – double expense deduction up to $10k for start-up firms:

Maximum loan amount increased 2.5 times to $5 MM

Small business can get grants from Treasury lending program

Outcome – government regulator and tax provision for job creation:

Small business community gains strong support from legislators, chambers of commerce, and other advocacy group

Real impact on highly skilled professionals

Comparative Analysis - Small Business Jobs Act (SBJA)

$1.5B fund to strengthen state programs to support small businesses

The program will expire in September, 2017

States can standardize their program rules

The fund is not a grant or federal assistance

Target borrowers with 500 or few employees and $5MM or less loan

Meet the 10 to 1 leveraging expectation by the end of 2016

The funding is not a competitive award process

Restrictions on borrowers.

Comparative Analysis - State Small Business Credit Initiative (SSBCI)

Intend – fund small community bank to lend capital to small businesses

Benefits – community banks receive huge incentives for this lending

332 banks are funded with total Treasury $4B.

Their preferred stocks are purchased by Treasury under low dividend rates.

Strengthen banks’ balance sheets with increased capital.

Use the fund to repaid TARP to avoid executive compensation restriction.

Outcome – small percentage of lending fund goes to small businesses

41% of 332 banks uses $2.2B to pay off their TARP obligations.

Only $4B or 13% of $30B available fund to small businesses.

Small businesses are struggle for bank credit.

Economic Emergency Stabilization Act (EESA)

Troubled Asset Relief Program (TARP)

Comparative Analysis - Small Business Lending Fund (SBLF)

Wells Fargo and Citigroup repaid $25B and $20B respectively

Common equity issuance plan:

Wells Fargo issued $10.4B of common stock and raised $1.35B through common stock issuance

Citigroup issued $17B of common stock

Asset sales and key benefits:

Wells Fargo increased equity by $1.5B through asset sales and approved by the Board

Wells Fargo eliminated $1.25B in annual preferred stock dividends

Citigroup $1.8B securities forgiven by the government, over $3B removed from its balance sheet and $1.3B after-tax loss

Capital ratios and liquidity on both banks gained stronger

Economic Emergency Stabilization Act (EESA) Troubled Asset Relief Program (TARP)

Comparative Analysis - Big Banks Equity Offering for TARP Repayment

Small business lending dropped regardless of assistance from the government

Banks have limited their lending to small businesses.

Comparative Analysis - Banks and Their Stakeholders: The Government and Customers

Causes of Limited Funds from Banks to Small Businesses:

Requirements of increasing capital reserve

Lending standards increased

TARP costs to banks

Banks lobbying to exiting TARP costs

Lobbying activities have increased since the recession

Awareness of the sensitivity to the publics

Comparative Analysis - How Banks Influence the Regulators

Demand for loans of small businesses has dropped

Comparative Analysis - Small Businesses and Stakeholders: Creditors, Publics and Employees

In 2010, there is an increase in loans, but still lower than before recession

Bankruptcy cases increased significantly

Lack of funding from creditors (banks) leaded to less business expand

The situation is better, but still worse than pre-recession

Comparative Analysis - Small Businesses’ Performance

Small businesses employ almost half of American workforce

Employment rate decrease by 2 million jobs from 2007 to 2011

This greatly affects the publics & communities

Comparative Analysis - Impact on the General Public and Employees

• Various loans demand rise as well as prime rate

• Consumer demand leads to strong sales in small businesses

• Credit market condition will improve as supply of bank credit increases

• Small businesses loans shall be standardized

• Small businesses are the backbone of our economy

• Improve credit supply and strong consumer confidence help the recovery

Final Assessment and Conclusion

Some Anticipated Economic Outcomes

• 2011 U.S Bank Small Business Annual Survey (22nd June, 2011). Retrieved March 30, 2012, from http://www.fsround.org/hyperlink/2011SmallBusinessAnnualSurvey.pdf

• ADP National Employment Historical Data (February 2012). Retrieved March 30, 2012, from http://www.adpemploymentreport.com/data/History_SBR_February_2012.xlsx

• ADP National Employment Report (December 2011). Retrieved March 30, 2012, from http://www.adpemploymentreport.com/pdf/FINAL_Release_December_11.pdf

• Alowlyapprentice (2011). The Warning – Brooksley Born Arrives on the Scene (2 of 6). Retrieved March 25, 2012, from http://youtu.be/WpLXhbueQv0

• Biz2Credit Small Business Lending Index for December 2011 Finds Loan Approval Rates Rose at Small Banks and Alternative Lenders, Dipped at Big Banks (2012). Retrieved March 30, 2012, from http://www.biz2credit.com/january2012/biz2Credit-small-business-lending-index-for-december2011

• Farlex, Inc. (2012). The Free Dictionary.com: Financial Dictionary. Retrieved February 28, 2012, from http://financial-dictionary.thefreedictionary.com/Troubled+Asset+Relief+Program

• Feintzeig, R. (2008). More Companies Shutting Down As U.S. Financial Crisis Deepens. Bankruptcy Statistics. Retrieved from http://www.bankruptcy-statistics.com

• Frequently Asked Questions. Retrieved from the U.S. Small Business Administration (SBA) Office of Advocacy website: http://www.sba.gov/sites/default/files/sbfaq.pdf

• Gandel, S. (13th March, 2012). Banks pass Fed's stress test. CNN Money. Retrieved from http://finance.fortune.cnn.com/2012/03/13/banks-pass-feds-stress-test/.

• Hoover, K. (20th September, 2011). Banks offer $20B in help to small business. Washington Business Journal. Retrieved from http://www.bizjournals.com/washington/news/2011/09/20/banks-offer-20b-in-help-to-small.html

• Investopedia, ULC. (2012). Investopedia.com: Dictionary. Retrieved February 28, 2012, from http://www.investopedia.com

• Liberty-Tree.ca.com (1998-2005). James Madison Quotes. Retrieved March 27, 2012, from http://quotes.liberty-tree.ca/quotes

• Meica, T. (21st November, 2011). Small businesses struggle to find credit in post-recession world. CreditCards.com. Retrieved from http://www.creditcards.com/credit-card-news/small-business-credit-lending-post-recession-1269.php#ixzz1oZecfKRS.

• Micro Businesses Report Growth in Customers and Revenue for 2011 (27th February, 2012). Retrieved March 30, 2012, from http://www.marketwatch.com/story/micro-businesses-report-growth-in-customers-and-revenue-for-2011-2012-02-27

• Palleta, D. (22nd April, 2009). Financial Firms Lobby to Cut Cost of TARP Exit. The Walls Street Journal. Retrieved from http://online.wsj.com/article/SB124035639380840961.html

• Third quarter 2010: The economy and Small business (10th November, 2010). Retrieved March 30, 2012, from http://archive.sba.gov/advo/research/sbqei1003.pdf

• Williams V., (7th June, 2011). Small Business Lending: First Quarter 2011. Retrieved from the U.S. Small Business Administration (SBA) Office of Advocacy website: http://www.sba.gov/sites/default/files/files/SBL_2011Q1.pdf

• Wilson, L. (2011). Financial Reform Insights.com: Featured: Small Business Lending Fund Annual Auditor Certification. Retrieved February 28, 2012, from http://www.financialreforminsights.com

Selected List of References

Q & A