Treasury offers loans to banks funding community development

Secretary Timothy F. Geithner: Treasury is opening credit channels.
Secretary Timothy F. Geithner: Treasury is opening credit channels. (Andrew Harrer/bloomberg News)
By Binyamin Appelbaum
Washington Post Staff Writer
Thursday, February 4, 2010

The Treasury Department said Wednesday that it will offer up to $1 billion in low-cost loans to banks that focus on funding development in lower-income communities, part of the administration's new emphasis on helping smaller banks.

The special program, which offers more favorable terms than those available to most banks, will benefit a group of institutions long embraced by Democratic politicians for working in areas where mainstream banks make few loans.

Among the potential beneficiaries is ShoreBank, a pioneering force in the redevelopment of Chicago's Southside that now is struggling with rising loan losses. The program also could benefit OneUnited Bank of Massachusetts, which got federal aid in fall 2008 with the help of Rep. Barney Frank (D-Mass.) but now could be allowed to pay a lower interest rate.

Administration officials said it made sense to offer additional support in the areas hit hardest by the economic downturn.

"This program that you're seeing us lay out today is a very powerful way to try to make sure that we're starting to open up some of the credit channels for businesses in parts of the country where it's most needed and where we think there's going to be a very, very high return," Treasury Secretary Timothy F. Geithner said Wednesday.

The government will offer loans to about 60 banks and 150 credit unions that are certified as community development financial institutions. The loans will carry an interest rate of 2 percent, less than the 5 percent paid by other banks. Treasury also will lower eligibility standards, allowing less healthy banks to qualify if they can raise matching funds from private investors.

The money will come from the $700 billion allocated by Congress to rescue the financial industry. Unlike other recent administration proposals, it does not require congressional approval.

Mark Pinsky, chief executive of the Opportunity Finance Network, an umbrella group for community development lenders, said the industry was "thrilled" by the program. He said advocates now are pushing Treasury to offer similar financial support to community development lenders that do not hold bank charters.

ShoreBank is among the largest and oldest community development lenders. It is also among those most in need of help. The company said earlier this week that it lost $51 million in 2009. It also has been hit with enforcement actions by state and federal regulators.

The bank did not get aid from Treasury's original rescue program, but it could qualify for aid under the new program, provided that it can raise some money from private investors.

OneUnited is in a different position. It got $12.1 million from Treasury in December 2008 after Frank included language in the bailout legislation effectively directing Treasury to give it special consideration. The bank has since stopped making required interest payments, but because of its focus on community development, it could now qualify to convert its loan to a lower interest rate.

Staff writer David Cho contributed to this report.

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