tarp group project presentation
DESCRIPTION
TARP and SBLF\'s Effects on Various StakeholdersTRANSCRIPT
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