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TARP and SBLF\'s Effects on Various Stakeholders

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  • 1. I. Statement of Proposal - TreatiseII. Terminology and Description: SBA, SBLF, EESA, TARPIII. Selected Course Concepts and Principles Used In Analysis ReportIV. Key Drivers of Economic ActivityV. Historical PerspectiveVI. Pre- and Post-2008 Financial Crisis Comparative Analysis: Government, Banking and Financial Institution, and BusinessVII. Final Assessment and ConclusionVIII. ReferencesIX. Q & A
  • 2. Society Macro and Microeconomic Impact of Government Intervention: TARP and SBLF Banking BusinessThe 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 - TroubledAssets 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 impactedsmall-to-medium enterprises (SMEs) and their stakeholders. The report analysis was conducted during afive-year pre- and post-financial crisis period (financial crisis of 2008) spanning from the beginning of Year2006 to the end of Year 2011, with considerable emphasis given to the time immediately following thefinancial crisis.
  • 3. 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 2002Depository Institution Deregulations and Monetary Control Act of 1980 Garn-St. Germain Depository Institutions Act of 1982 American Bankruptcy Institute The Volcker Rule
  • 4. U.S. Government:Description and Functionality: Constitutional Republic with limited powersCentralized State-Controlled versus Free Market CapitalismRegulation vs. Deregulation vs. ReregulationTwo Key Pecuniary Policies for General Public: Fiscal and MonetaryImportant Government Interventions and Events during the past centuryU.S. Banking Industry:Description and Role: Depository, Facilitator, Transacting Agent of Countrys Monetary Capital Types of Banks and Interconnecting Relationships: Centralized, Commercial, and InvestmentBanking Key Historical EventsU.S. Small Business Industry:Description and Economic Presence:Historical Accounts How Economic Conditions Affect Businesses
  • 5. From Depression and War | Milestones in the SBAs Development1932 1958 1980President Hoover creates Under the Small Business Investment The SBAs Small Businessthe Reconstruction Finance Company program, the SBA begins Development Center programCorporation (RFC) to lend to regulating and helping to fund privately links states and the federalbusinesses of all sizes hurt owned ventured capital firms. government to deliver freeby the Depression. campus-based training and counseling to entrepreneurs.1942 1964 1996Congress forms the Smaller The SBAs Equal Opportunity Loan Congressional Republicans tryWar Plants Corporation to Program begins providing start-up but fail to kill the agency.help small businesses loans to applicants below poverty line.participate in wartime Also, Score program is created to offerproduction. volunteer mentoring of entrepreneurs by retired business execs.1953 1967 2007Congress creates the Small President Johnson orders the SBA to Investments in small businessesBusiness Administration direct federal contracts to businesses by SBA-backed Small Business(SBA) to take over the small- located in economically distressed Investment Companies reached abusiness-related functions urban areas, creating the 8 (a) cumulative total of more than $50of the RFC. Business Development programs. billion.1954 1972 2012The SBA makes its first For the first time, the SBA records a President Obama proposessmall-business loans. one-year total of more than $1 billion in combining the SBA with five other small-business loans. agencies.
  • 6. 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
  • 7. $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.
  • 8. 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.
  • 9. 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
  • 10. Small business lending dropped regardless of assistance from the government Banks have limited their lending to small businesses. Requirements of increasing capital reserve Lending standards increased TARP costs to banks
  • 11. Banks lobbying to exiting TARP costs Lobbying activities have increased since the recession Awareness of the sensitivity to the publics
  • 12. Demand for loans of small businesses has dropped