U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing, and Urban Affairs, today delivered a speech on the floor of the U.S. Senate regarding an amendment to the small business lending bill that would have the government take ownership interests in hundreds of banks and then require that they make loans.  Excerpts of Shelby’s speech are immediately below in bold, followed by the full text of his remarks.  

“This amendment is intended to help small businesses - a goal we can all support.  Yet, in practice the legislation would create a second TARP…

“Just one day after the enactment of Dodd-Frank which contained a provision to speed up the termination of the TARP program, we are voting on an amendment to extend TARP for at least another 10 years.

“The lack of credit for small businesses is a problem that needs to be addressed.  I fully support the Banking Committee examining this issue and hope that Chairman Dodd would consider holding a hearing.  I do not, however, believe that we should try and solve this problem with another expensive and bureaucratic government program.”

Senator Shelby’s remarks, as prepared, are as follows:

Mr. President, I rise today to oppose the Landrieu Amendment.
 
One day after the President signed the Dodd-Frank financial regulation bill into law proclaiming an end to taxpayer-funded bailouts, we find ourselves debating another bailout bill. 
 
Just last week we were told by the majority that the mere passage of Dodd-Frank would help revive our damaged financial system.
 
The bill was heralded as a thoroughly considered and comprehensive piece of legislation that would restore confidence in our financial system and revive our economy.  What a difference a day makes.
 
If Dodd-Frank is really going revive our economy, why do we need this bill?  Mr. President, I think the answer is clear:  the majority knows that Dodd-Frank is going to reduce lending and undermine economic growth by imposing more regulations and taxes on our banks. 
 
They know that Dodd-Frank will do nothing to increase the availability or reduce the cost of loans to small businesses.
 
Rather than create a new regulatory system to strengthen our private sector, the majority decided to expand significantly the old system, thereby increasing the regulatory burden on American businesses, small, medium and large. 
 
Mr. President, this is the same old song and dance – expand the reach of the heavy hand of government, increase taxes and the cost of doing business and then complain that the private sector is not working. 
 
Once the American business owner is sufficiently encumbered, the only alternative must be a brand new big government program. 
 
And how do we pay for this new and “necessary” government program?  We borrow money from future generations.  Sound familiar?

Mr. President, this amendment is intended to help small businesses - a goal we can all support.  Yet, in practice the legislation would create a second TARP.
 
Like TARP, this program does not lend money directly to small businesses.  It would have the government take ownership interests in hundreds of banks and then require that they make loans.  This is TARP II.  In fact, banks could replace original TARP money with funds received from this program.
 
Mr. President, just one day after the enactment of Dodd-Frank which contained a provision to speed up the termination of the TARP program, we are voting on an amendment to extend TARP for at least another 10 years.
 
To force banks to participate in this program, the legislation would subsidize bank financing.  Banks would generally pay dividends on the government equity investments at rates ranging from one to five percent.  The current market yield on such investments, however, is between seven and eight percent. 
 
Hence, any bank that chooses not to participate could find itself at a competitive disadvantage.  Moreover, this legislation forces taxpayers to subsidize banks  –  once again.  In effect, we are taxing small business owners to pay banks to lend to small businesses. 
 
Even worse, Mr. President, the government’s equity investments would be subordinated to all of a bank’s existing debt.  As a result, if a bank fails, existing creditors would get paid before the government, and taxpayers would take the hit. 
 
Mr. President, I believe that American taxpayers have lost their appetite for bank bailouts.
 
Finally, I also want to note that the legislation appears to exempt loans made under this program from existing underwriting regulations.  The bank regulator would then have the authority to decide what types of underwriting standards apply to these loans.  This raises two issues.
 
First, if the multitude of regulations required by Dodd-Frank are really necessary, why does this bill provide a carve-out for loans made under this program?  Second, what statutory protections are there to ensure that these loans are underwritten in a safe and sound manner, so that we don’t create hundreds of new Freddies and Fannies?  The answer is none.
 
Mr. President, this legislation would continue the majority’s assault on American business by having the government dictate how and to whom loans are made. 
 
Each participating bank would have to provide the government with a business plan for review.  Rather than having loans approved based on the creditworthiness of a borrower, politics will now play a role.  We should let the market, not bureaucrats decide which businesses get loans.  Unfortunately, the majority party is once again sacrificing our core economic values for a short term economic gain.

Mr. President, the lack of credit for small businesses is a problem that needs to be addressed. 
 
I fully support the Banking Committee examining this issue and hope that Chairman Dodd would consider holding a hearing.  I do not, however, believe that we should try and solve this problem with another expensive and bureaucratic government program.