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ICBA: Small Business Lending Fund Provides Incentive for Community Banks to Increase Lending

Washington, D.C. (May 18, 2010)—Independent Community Bankers of America (ICBA) Chairman Jim MacPhee, CEO of Kalamazoo County State Bank in Schoolcraft, Mich., today told Congress that the Administration’s Small Business Lending Fund could provide a powerful incentive for community banks to increase lending to small businesses that drive economic growth.

“My community banker colleagues and I work day-in and day-out to serve our small business customers because our viability is intertwined with theirs in the communities we serve,” said MacPhee in his testimony before the House Financial Services Committee. “Small businesses create jobs when they have access to credit and they play a pivotal role in employment and in our nation’s economic recovery. That is why ICBA strongly supports the proposed Small Business Lending Fund and other measures that will bring more credit to small businesses.”

MacPhee said that community banks are prolific small business lenders, responsible for a disproportionate amount of the nation's small business loans. He said that during the economic crisis, small business lending by megabanks fell dramatically, while lending by community banks held steady. “The community bank business model is built on longstanding relationships with our small business customers. We stand by them in good times and bad,” he said.

MacPhee said the Administration’s Small Business Lending Fund is a fresh, bold program with the incentives needed to get credit flowing to thousands of businesses using community banks as conduits. In fact, community banks could leverage the $30 billion fund to extend as much as $300 billion in new small business credit to local customers. “This structure could provide a powerful incentive for a bank to increase its small business lending,” he said.

The Michigan community banker said that ICBA is pleased that the proposal includes many features the association sought that will make the program more attractive to community banks. In particular, it appears to completely avoid onerous Troubled Asset Relief Program (TARP) restrictions such as warrants, compensation restrictions, bank dividend restrictions, or restrictions on Net Operating Loss carryback. Such punitive conditions would only discourage participation. ICBA is also pleased that no applicant would be denied based solely on its CAMELS rating, thus ensuring the broadest possible number of community bank participants, and that agricultural loans are eligible for the program.

While MacPhee cited the Small Business Fund as a “tremendous bang for the buck,” he also said that no one program in isolation can restore credit to small business. To maximize its impact, he suggested restoring the value of lost Fannie Mae and Freddie Mac preferred shares to help replenish bank capital and support more lending to small businesses; ending overly aggressive exams by regulators that choke off credit; and extending the FDIC’s Transaction Account Guarantee (TAG) program.

MacPhee noted that the economy truly won’t thrive again until the environment for small businesses improves. “Community banks’ special relationship with small businesses gives us a special responsibility to pursue practical solutions to the challenges they face,” he said.

To view MacPhee’s full testimony, visit www.icba.org.