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FINANCIAL AND ECONOMIC CHALLENGES 

FACING SMALL BUSINESSES 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

NOVEMBER 20, 2008 

Small Business Committee Document Number 110-117 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLES GONZALEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director 

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax 

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

VERN BUCHANAN, Florida, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

Subcommittee on Contracting and Technology 

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

(II) 

Subcommittee on Regulations, Health Care and Trade 

CHARLES GONZALEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

Subcommittee on Rural and Urban Entrepreneurship 

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLES GONZALEZ, Texas 

RAUL GRIJALVA, Arizona 

MARY FALLIN, Oklahoma, Ranking 

LYNN WESTMORELAND, Georgia 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Chabot, Hon. Steve .................................................................................................. 2 

WITNESSES 

Krosner, Hon. Randall S., Governor, Board of Governors, Federal Reserve 

System ................................................................................................................... 4 

Ramanathan, Mr. Karthik, Acting Assistant Secretary for Financial Markets, 

U.S. Department of the Treasury ....................................................................... 6 

APPENDIX 

PREPARED STATEMENTS: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 30 

Altmire, Hon. Jason ................................................................................................. 33 

Ramanathan, Mr. Karthik, Acting Assistant Secretary for Financial Markets, 

U.S. Department of the Treasury ....................................................................... 34 

Krosner, Hon. Randall S., Governor, Board of Governors, Federal Reserve 

System ................................................................................................................... 38 

(V) 

(1) 

FINANCIAL AND ECONOMIC CHALLENGES 

FACING SMALL BUSINESSES 

Thursday, November 20, 2008 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 10:38 a.m., in Room 

2360, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Shuler, Michaud, Cuellar, 

Clarke, Sestak, Chabot, Westmoreland, and Gohmert. 

Chairwoman VELA ́ ZQUEZ. This hearing of the Small Business 

Committee is now called to order. Despite actions taken by the 

Federal Government this September, the fallout from our Nation’s 

financial crisis continues to grow. In the face of a collapsing housing market, tightening credit crunch and record unemployment, it 

is clear that the current course of action is neither stabilizing nor 

galvanizing the economy. This is particularly apparent within the 

struggling small business community. Rather than trickling down 

resources from the Treasury and the Federal Reserve are pulling 

and stagnating at the top. 

As a result, small businesses from tech start-ups to convenience 

stores are bearing the brunt of severely restricted lending. In a report released last month, the Federal Reserve found that 75 percent of domestic banks have tightened their small business loan 

standards. On top of that, 90 percent of respondents said they have 

raised the cost of small business credit lines. At a time when large 

financial institutions are enjoying Treasury handouts, it will only 

make sense for small firms, the backbone of our economy, to receive comparable assistance. But unfortunately, even loans from 

the Small Business Administration are on the decline. In fact, SBA 

lending has dipped 50 percent in the last year. 

In today’s hearing, we will analyze the current conditions facing 

small firms and evaluate what actions the Treasury and the Federal Reserve have taken to address those circumstances. Regardless of continued declines, positive steps have been made through 

the Economic Recovery and Stabilization Act. The Federal Reserve’s commercial paper facility, for example, has succeeded in 

partially easing the credit crunch. But unfortunately, the Fed 

missed a real opportunity to help small firms when it chose to limit 

this provision to big businesses. 

As a result of that particular oversight, the small business credit 

markets are as frozen today as they were when the crisis began. 

To remedy this we ought to look for a concept similar to what the 

2 

FDIC is now doing for homeowners. Sheila Bair has outlined an innovative new plan for restructuring mortgages, and something 

similar might work for small business loans. Despite these instances of government ingenuity implementation of the recovery 

legislation has largely failed entrepreneurs. 

For example, the Treasury’s troubled asset relief program, or 

TARP, has done nothing to solve the small lending freeze. In fact, 

the banks benefiting from TARP have all but shut down lending 

operations. And while billions of dollars have been earmarked for 

big banks and AIG, thousands of small firms across the country 

have been forced to close their doors. Shutting small businesses out 

of stabilization efforts just isn’t logical. Current legislation while 

not designed as a stimulus per se was intended to do more than 

simply steady the markets. It was expected to help jump-start the 

economy. Because small firms are proven drivers of economic 

growth it only makes sense to give them the tools they need to 

spark recovery. Our financial system is entering an era of unparalleled turmoil and confusion. 

But amidst the upheaval, one thing has become abundantly 

clear, we cannot rely on the policies of the past. It has been said 

before that extraordinary times call for extraordinary measures. 

Well, these are certainly extraordinary times. If we are to match 

them to our measures then we must take a page from the entrepreneurs playbook. Through ingenuity and resourcefulness we can 

find innovative new ways to give small businesses and the rest of 

the economy the resources they need to get back on track. 

With that I look forward to a frank discussion, an open discussion this morning, and thank the witnesses in advance for their 

testimony. With that I now yield to the ranking member, Mr. 

Chabot, for his opening statement. 

Mr. CHABOT. Thank you, Madam Chairwoman. And I, first of all, 

want to note and congratulate you on being elevated to chairwoman of the Hispanic caucus. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. CHABOT. That just happened today so I wanted to say good 

luck and congratulations on that. And I want to thank you for holding this hearing. The issues that will be addressed in today’s hearing are vital to the economy and the ability of current and future 

small business owners to lead us to a brighter economic future. 

When Congress adjourned early October, there was an expectation 

in some circles that the bill enacted by Congress would help resuscitate the economy. Those hopes and expectations have been 

dashed on the rocks of continuing economic turmoil. Despite promises of better times ahead after passage of the bailout consumer 

confidence remains low. 

Many companies are laying off workers and three automobile 

manufacturers with a significant presence in my home State of 

Ohio, as well as many other States around the country, appear to 

be teetering on the abyss of failure. There is, no doubt, in these 

troubling times that solutions must be found to these financial 

problems. One glimmering light in these times is the agility, resourcefulness and drive of America’s entrepreneurs. As larger enterprises lay off workers, small businesses will help to fill the gap, 

either through hiring of new employees or the creation of entirely 

3 

new enterprises. But the ideas of America’s entrepreneurs require 

something that has been in very short supply recently, and that is 

capital. 

Today’s hearing will focus on the current availability of capital 

for small business owners and possible solutions to increase liquidity in the small business lending markets. From all that I have 

been hearing, there is little available capital for small businesses. 

Banks are cutting back on credit for entrepreneurs, venture capital 

remains scarce and the safety net of SBA lending programs have 

seen dramatic reductions in loan approvals. If we are relying on 

small businesses to lead us out of the current economic situation, 

the absence of available capital is fraught with serious consequences. 

During the debate on the financial rescue, there was an expectation that the funds injected into firms would then be loaned to 

firms requiring new capital. That has not occurred, and the members of this committee are certainly interested in knowing why that 

has not occurred. This should not be viewed as laying the basis for 

blame or recriminations; rather, it is necessary to ensure that Congress and future legislative action does not repeat the errors of the 

past. 

I would be very interested in hearing from the witnesses any 

mistakes they may believe have been made. Further efforts to inject capital into the credit markets will increase the debt ceiling in 

Federal borrowing. As I noted in a previous hearing, small business 

owners cannot compete against the Federal Government in a market for debt capital. So any solution to the current liquidity crisis 

and the small business debt market must address the cost of capital to America’s entrepreneurs. Simply making the capital available, which is no doubt important, will be of little use if the cost 

of such capital is so high that prudent small business owners will 

not take the risk of the higher debt payments, particularly in uncertain economic times. I would be very interested in suggestions 

on how the balance between further liquidity injections and balance those with the cost of debt capital for small business owners. 

No one can deny that recent weeks and months are placing a strain 

on the finances of all Americans, including America’s small businesses. Solutions must be found that increase liquidity of small 

businesses without presenting them with unaffordable capital. 

Again, I thank the chairwoman for holding this hearing and I yield 

back my time. 

Chairwoman VELA ́ ZQUEZ. Thank you, ranking member. And before I introduce the witnesses I would like to take a minute to say 

that this committee has had a very productive 2 years, and that 

was largely thanks to your leadership, Mr. Ranking Member. While 

we may not have been seeing eye to eye on every policy, I always 

appreciated your input. I knew that it was motivated by what you 

deemed best for small business. Nine times out of ten we ended up 

with a better product as a result. 

And of course, let us not forget how much, how much you taught 

me about ANWR. I now know more about that place than I ever 

dreamed or hoped to know. So I could go on and on about you, 

Steve, but I don’t want these witnesses to think that they are going 

to get off easy. But seriously, it has been a pleasure getting to work 

4 

with you and getting to know you. Thank you for your service, and 

you have a friend here in the House of Representatives. 

Mr. CHABOT. Well, thank you very much, Madam Chairwoman. 

It has been a pleasure working with you. And I think we were able 

to work together in a bipartisan fashion for the good of the small 

business community across the country. And I consider you not 

only a colleague but a friend. And even though we are different 

parties and different philosophies relative to a lot of issues, we did 

work together, and our staffs did too. And I think we both have excellent staffs, and it has been a pleasure working with you. 

Chairwoman VELA ́ ZQUEZ. And now it is my pleasure to welcome 

the Honorable Randall S. Kroszner. Mr. Kroszner is a member of 

the Board of Governors of the Federal Reserve System. Dr. 

Kroszner took office on March 1, 2006, to fill an unexpired term 

ending January 31, 2008. Before joining the board, he served the 

Federal Reserve System in several roles, including visiting scholar 

at the Federal Reserve banks of New York, St. Louis, Kansas City 

and Minneapolis. The Federal Reserve System was founded by 

Congress in 1913 to provide the United States with a safer and stable monetary system. Welcome, sir. 

STATEMENT OF HON. RANDALL KROSZNER, GOVERNOR, 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mr. KROSZNER. Thank you very much. Chairwoman Vela ́zquez, 

Ranking Member Chabot and Members of the Committee, I am 

very pleased to appear here on behalf of the Federal Reserve Board 

of Governors. My remarks will briefly address how the ongoing financial turmoil and weakening macroeconomy appear to be affecting small business credit. In addition, I will discuss how recent policy actions of the Federal Reserve, the Congress and other government agencies should assist small business going forward. To summarize, the information we have received indicates that over the 

last 6 months, it has become more difficult for small businesses to 

access credit. But that at the same time the demand from small 

businesses for credit has also declined. Commercial banks, the most 

common source of credit for small business, have generally both imposed more stringent credit standards and increased the interest 

rate spreads and fees. 

In addition, deteriorating financial positions in both small businesses and the household sector are almost surely reducing the 

credit worthiness of many small businesses and thereby constraining their access to credit. That said, the information we have 

on the volume of small business loans suggests that credit is still 

generally available, albeit on significant stricter terms. Small businesses generally report that reduced demand for their products and 

services caused by a lower level of economic activity is a more serious concern than is the tightening credit supply conditions. 

Importantly, there is some evidence that concern over access to 

credit is relatively stronger at larger businesses. I will now highlight a few specifics from the much more detailed written testimony 

that I have submitted to you. In the Board’s most recent senior 

loan officer opinion survey on bank lending practices conducted in 

October that Madam Chairwoman had made reference to, a net 75 

5 

percent of domestic banks surveyed reported they had tightened 

standards applied when approving commercial and industrial loans 

to small businesses. But small businesses were not alone. Almost 

a net 85 percent of domestic banks reported having tightened credit 

standards on such loans to large and middle market firms. Importantly, the net fractions of banks reporting tighter lending standards and tighter price terms on loans and businesses of all sizes 

were very high by historical standards going back to 1990. 

Business surveys such as the recent monthly surveys from the 

National Federation of Independent Businesses NFIB suggest that 

finance conditions for small business have deteriorated substantially over the past several months. That said, financing conditions 

have continued to be ranked as a top small business concern by 

only a modest fraction of small businesses; 5 percent in the October 

survey. Changes in the quantity of loans at banks also suggest that 

small businesses have generally maintained their access to bank 

credit, although new grants of credit tend to be subjected to stricter 

standards and terms. 

During the credit demand, the NFIB survey results are quite 

pessimistic. For example, the survey indicates that small business 

optimism dropped in October to its lowest level since the monthly 

surveys began in 1986. Some 23 percent of firms indicated that 

sales were their main concern. Results such as these when combined by other survey data suggest that demand concerns generally 

provide the most serious challenge currently facing businesses. Policymakers both in the United States and other countries have 

taken a series of extraordinary actions aimed at restoring market 

functioning, improving investor confidence and stimulating economic active. The benefits to small business from these actions will 

be largely indirect but nevertheless real. 

For example, improving interbank funding markets and restoring 

public confidence in banks and other financial institutions benefits 

small businesses by lowering intermediaries and thereby small 

businesses lowering costs and increasing the volume of loans that 

banks can extend. Importantly, some of these policy actions will 

also directly benefit small businesses. For example, recent reductions in Federal funds rate should result in small businesses facing 

lower borrowing costs. 

In addition, stronger economic activity from lower interest rates 

should result in small businesses enjoying increased demand for 

their products and services. Going forward the evolution of small 

business access to credit will be strongly influenced by the success 

of these and other recent policy actions. Given the current financial 

and economic environment the sizes and effects of the recent policies on both the economy and small business directly are highly uncertain. 

For these reasons, the Federal Reserve will continue to monitor 

the financial markets and economic conditions and their affects on 

small business access to credit as part of their efforts to restore the 

health of the U.S. financial system and our economy. Thank you 

very much and I look forward to your questions. 

Chairwoman VELA ́ ZQUEZ. Thank you Dr. Kroszner. 

[The statement of Mr. Kroszner is included in the appendix at 

page 38.] 

6 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Karthik 

Ramanathan. Mr. Ramanathan is Acting Assistant Secretary For 

Financial Markets in the U.S. Department of Treasury. He serves 

as senior advisor to the Secretary, Deputy Secretary and Under 

Secretary on extensive matters. Mr. Ramanathan also serves as the 

senior member of the Treasury Financing Group. In addition, he 

oversees the Office of Debt Management and the Office of Government Financial Policy as well as the operation of the said commissions and board staff. While he started working at the Treasury 

Department in 2005, he began his current position in 2006. Welcome sir. 

STATEMENT OF KARTHIK RAMANATHAN, ACTING ASSISTANT 

SECRETARY FOR FINANCIAL MARKETS, UNITED STATES DEPARTMENT OF TREASURY 

Mr. RAMANATHAN. Thank you. Chairwoman Vela ́zquez, Ranking 

Member Chabot and members of the Committee, thank you for this 

opportunity to testify this morning. Small businesses are crucial to 

the health of the U.S. economy. They provide the entrepreneurial 

talent that keeps the economy flexible and dynamic. Small businesses employ over half the U.S. work force and are estimated to 

generate 70 percent of all new jobs. Thank you for the opportunity 

to address this timely topic and stress the importance of this sector. 

As the acting assistant secretary for financial markets, I serve as 

a senior advisor to the Secretary, Deputy Secretary and Under Secretary on broad matters related to domestic finance, financial markets, including the Federal debt. My office is also responsible for 

the issuance of over $5 trillion in annual debt and for overseeing 

the $10 trillion U.S. debt portfolio. As you know, the economy is 

currently working through a prolonged housing correction that has 

impacted credit markets and financial institutions. The downturn 

in the housing market, as well as financial and credit market pressures, have negatively impacted the real economy. 

Small businesses and consumers have often felt the headwinds 

as employment, capital investment and consumption have declined. 

Community banks, thrifts and credit unions are vital components 

of the financial markets, and ensuring their health helps encourage 

the lending and borrowing activity that is critical for small businesses and consumers. To alleviate credit market strains, the 

Treasury, the Federal Reserve and the FDIC, along with our international counterparts, have taken unprecedented and extraordinary steps to address the current financial crisis, steps aimed at 

strengthening bank’s balance sheets, easing strains in the interbank lending markets and provided needed liquidity. While the 

long-term economic prospects of the United States are solid the 

United States, as well as the global economy, faces considerable 

challenges in the near term. The slowdown has affected nearly 

every sector of the U.S. economy. 

Small businesses have also felt these strains. And when small 

businesses suffer, the rest of the economy does as well. Let me just 

cite a few examples: Small businesses, in the retail and restaurant 

trade sector which represent 90 percent of all such firms, have 

7 

been particularly affected by recent economic conditions. The retail 

sector is estimated to have lost over 250,000 jobs in the past year. 

The home construction industry where small businesses make up 

80 percent of firms has also particularly been affected by declining 

home values and credit market conditions. Equipment manufacturers, so important for small businesses, have also reported large declines in new orders, capital spending and technology investment 

and are drying up as a result of the liquidity. These businesses are 

less able to obtain loans and even meet payrolls at times. 

The global financial crisis and tightened credit market have 

made it harder for small businesses to borrow the money they need 

to meet their payrolls, create new jobs and invest in the future. As 

the son of a first generation Indian-American engineer who has 

been building electrical and power generators across the United 

States for the past 40 years I have a particular insight into the difficulties facing small business. I hear stories about orders for new 

equipment and contracts for new engineering investments slowing 

dramatically. This illustrates stories we are hearing firsthand and 

reading about in newspapers in which our committee is well aware. 

To counter these difficulties, Treasury has applied the authorities Congress has provided to stabilize the financial system which 

will apply the flow of credit while protecting the taxpayer to the 

maximum extent possible. We have opened our capital purchase 

program to smaller community banks which interact on a day-today basis with small businesses. Importantly, many of these privately held institutions have strong long-lasting ties with local 

businesses in your communities. By providing capital to such institutions Treasury is directly assisting these small businesses so that 

they have an ability to make loans, mitigate funding pressures and 

promote growth locally. 

In addition to providing capital directly to banks, we are also examining strategies to support access to credit outside the banking 

system. With the Federal Reserve, we are exploring the development of a liquidity facility for highly rated triple A asset backed 

facilities. Such a facility could lower costs at increased credit availability for consumers and small businesses, and I would be happy 

to talk about that. Addressing the need of securitization sector will 

help get lending going again, helping consumers and supporting 

the U.S. economy. It will take time for the measures we have taken 

to have their full impact on an economy in which many consumers 

and businesses are struggling, but we have seen some encouraging 

signs. Treasury is mindful of the challenges and difficulties affecting the small business community. We will continue to focus on 

stabilizing the overall financial markets and reestablishing the flow 

of credit so that small businesses, consumers and all Americans 

can more easily obtain credit. Thank you for this opportunity to appear today, and I will be happy to take your questions. 

Chairwoman VELA ́ ZQUEZ. Thank you very much Mr. 

Ramanathan. 

[The statement of Mr. Ramanathan is included in the appendix 

at page 34.] 

Chairwoman VELA ́ ZQUEZ. I would like to address my first question to both of the gentlemen. The bailout has clearly been a massive financial expense for taxpayers. Since March, the Fed and 

8 

Treasury have lent, invested and guaranteed over $1 trillion to 

shore up the financial system. And you can see it there. Capital 

purchase program, $290 billion. Fed credit line to facilitate JP Morgan purchase of Bear Stearns, $30 billion. And the list goes on and 

on and on. Unfortunately, much of this money has found its way 

to large corporations, including JP Morgan, General Electric, Goldman Sachs, and has not yet made its way to small businesses, 

homeowners or consumers. Starting with Assistant Secretary 

Ramanathan, why has this massive bailout expense failed to reach 

Main Street? 

Mr. RAMANATHAN. Thank you, Chairwoman Vela ́zquez. I would 

be happy to answer that question. Let me step back and take a moment. Over the last 53 business days, we have seen Federal Home 

Loan Bank, Fannie Mae, Freddie Mac come under tremendous 

pressure, and we have stabilized them. We have seen Lehman 

Brothers go under. We have seen AIG have considerable strains, 

we have seen Merrill Lynch sold, we have Goldman Sachs and 

Morgan Stanley turn into bank holding companies, we have seen 

a tremendous shift in the financial markets. Moreover, banks in 

the UK, Ireland and France have also had considerable fails, so 

this isn’t a local issue, it is fully global. The effects of these have 

had tremendous strains on small business. Let me start with what 

happened in September-October when markets froze. Commercial 

paper, which is the life blood of business, both small and large, 

froze. Companies like Dana Corp in Toledo or Goodyear in Akron, 

Deere in Illinois or Tribune in Chicago all had difficulty and all 

drew on their bank lines. 

Chairwoman VELA ́ ZQUEZ. Those are all big businesses. Can you 

talk to me about small businesses? 

Mr. RAMANATHAN. Absolutely. But all these businesses are supported by many, many, many suppliers who are small businesses. 

So a failure in one of these companies or an inability to finance 

themselves would have had tremendous impacts across the system. 

Interbank lending seized. Banks didn’t trust each other. They were 

concerned about credit quality. Money market funds. A run on a 

money market fund caused tremendous panic across the markets. 

And without halting that, we could have seen potential issues 

across the markets. Corporate credit issuance seized. 

Chairwoman VELA ́ ZQUEZ. Can you talk to me about a specific action taken by Treasury targeting small businesses? 

Mr. RAMANATHAN. Absolutely. Let me mention our capital purchase program in which we are investing capital in big banks, as 

well as small banks and community banks. Our first nine banks 

that we invested in compose 55 percent of all deposits in the 

United States. As Governor Kroszner mentioned, 65 percent of 

small businesses get their funds from large commercial banks and 

other depository institutions. We opened our capital purchase program on Monday to private companies, privately held banks. We 

currently have over 1,000 applications from privately held banks 

who loan in their private districts. In terms of small firms, I would 

have come to a bank in—Mountain First Bank in Hendersonville, 

for example, where we should lend it $200 million, which will be 

lending to the local community. 

9 

Chairwoman VELA ́ ZQUEZ. How much money do you have, a number as to how much money has been provided in credits to those 

small businesses? Because you mentioned that these big businesses 

and these big banks provide funding money for small banks or 

small businesses. 

Mr. RAMANATHAN. Yes. 

Chairwoman VELA ́ ZQUEZ. 48 percent of small businesses get their financing from small community banks that have $1 billion and 

less in assets. 

Mr. RAMANATHAN. Yes. 

Chairwoman VELA ́ ZQUEZ. Until very recently the Treasury has 

excluded most of these banks from participating in the capital purchase program which provides equity injection. This left only $60 

billion left from the first installment of the TARP for the nearly 

6,000 banks that were initially denied access. So are you concerned 

that there is not enough money funds for these institutions? 

Mr. RAMANATHAN. As you recall, there are 8,400 eligible institutions, financial institutions. 1,800 are public, 3,400 are publicly 

held, 2,500 are S Corp and about 625 are mutual corporations. We 

began this program, this legislation on October 1st when we were 

granted authority. We went out to the market on October 14th 

with applications. And on November 14th we closed the first batch. 

We tried to build the core of the nine biggest banks with 55 percent 

of deposits initially to ensure that there was a strong financial 

base. This Monday, we opened the capital purchase program to 

thousands of banks, local and community. We had been funding 

them actively, and we believe there is tremendous amount of TARP 

capital left for these institutions. We look forward to them and encourage them to apply, and it is not on a first-come-first-servebasis. 

Chairwoman VELA ́ ZQUEZ. My question is the $60 billion that are 

left that will deal with the 6,000 small banks that are out there, 

plus everything else, do you think that that will be enough? 

Mr. RAMANATHAN. We believe that that is enough. 

Chairwoman VELA ́ ZQUEZ. So you are telling us today that that 

will be sufficient money to deal with all the banks that are out 

there that has not gotten any help to this point, up to this point, 

and that we are going to get credit going trickling down to small 

businesses? 

Mr. RAMANATHAN. And what I would say to that is this: Banks 

can apply to their regulator, their Federal regulator; the OTS, the 

OCC, the FDIC, or the Federal Reserve. There is a process which 

they go through. And if they are approved by the regulators it 

comes to Treasury for our decision to provide capital or not. We 

look forward to providing capital to these institutions which are 

viable and which make a tremendous impact on local communities. 

One of the items to note is every dollar that is invested in these 

local community banks go a much further way in providing lending 

to smaller— 

Chairwoman VELA ́ ZQUEZ. So why are you waiting so long? Because let me tell you something, you know. We all know that in 

order to stabilize our economy and to get this economy growing, 

what do we need to do? Create jobs. It is not JP Morgan or Merrill 

Lynch or none of the big corporations that weren’t creating jobs. 

10 

Small businesses are the ones. They should have been the first 

ones to get the financial support and the money, the capital infusion that they needed. 

Mr. Kroszner, last month we held a hearing with several small 

business owners in this committee. They discussed that the Treasury and Fed’s action were not reaching Main Street America. In 

fact, if you take today’s papers, any paper, you are going to see stories there about small businesses complaining that they cannot get 

the credit that they need, the capital that they need. So one business that was here testifying, which has survived the Great Depression, announced that it was closing its door altogether because 

of the inability to secure financing. We keep hearing how the Fed’s 

and Treasury’s actions aren’t working. But why then are so many 

small businesses unable to secure the capital they need to survive? 

Sir, time is running out for them. What are you telling them? 

Mr. KROSZNER. This is very, very important, because the economy is facing significant challenges. Small business and large business are facing a much lower demand than they have in the past. 

We have seen the economy does not have the robustness that it has 

had in the past. That means that demand is much lower for the 

goods and services that are produced by the Nation’s work force 

and by the Nation’s both small and large businesses. And so it is 

extremely important that we try to make sure that credit worthy 

borrowers still have access to credit. And this is one of the reasons 

why we very much look carefully at the surveys from senior loan 

officers asking about the changes in credit terms to small and large 

business. 

As I mentioned, significant increases in tightening, or increases 

in the standards and terms. We ask for about small business 

versus large business. It has been happening, as I had noted, for 

both small and large business. This is a real challenge for businesses to get credit in these difficult times. And so it is very important for us to work to make sure that credit is available. And I 

think a number of the actions that we have undertaken to try to 

provide confidence to the banking system generally and provide 

greater liquidity to that system will help to make the banks more 

stable and more able to lend. 

Chairwoman VELA ́ ZQUEZ. Well, let’s discuss the Fed’s commercial 

paper facility that has been in operation for the last 3 weeks now. 

Clearly, this facility was created for large corporations that issue 

this type of debt. General Electric, American Express, Ford, Chrysler and GM are some of the companies using this facility. Why 

hasn’t the Fed create a facility to provide similar support to the 

small business financing market? 

Mr. KROSZNER. Well, first, I think by providing some relief in 

these markets, providing some alternative to bank borrowing by 

the larger banks that helps to put more capacity available by the 

banks for smaller businesses. Because as you noted, Madam Chairwoman, the small business do not issue commercial paper, only 

large firms do so. The credit that AmEx is getting, that General 

Motors and others are getting, is helpful to support consumer lending in these areas. So it is getting to consumers. 

Chairwoman VELA ́ ZQUEZ. My frustration, sir, is why haven’t you 

taken any action to great a vehicle that is specifically dealing with 

11 

the reality that small businesses are not getting the financing that 

they need? With this new commercial paper facility you are taking 

new risk. Why can’t can you expand a facility that you have to include, for example, the 7(a) and 504 that are already backed by full 

faith and credit of the Federal Government? Why can’t you do that? 

Mr. KROSZNER. And so we have focused first on the commercial 

paper facility to provide credit to the system. And we are trying to 

make sure to provide credit throughout the system. As I mentioned 

earlier, and mentioned in the testimony, that both small banks and 

big banks are very important providers of credit to small business. 

As you all know, that is the primary place that small business get 

their credit. And if you define small business credit as loans under 

$1 million and define large banks as those with over $1 billion, 

roughly two-thirds of small business lending actually comes from 

large banks and the other third comes from smaller banks. 

So by trying to provide more ability for banks to lend by having 

greater capacity for them to lend, greater liquidity and that they 

don’t have to lend to large banks, they can then do what is very 

valuable for small business to do and lend to small business. 

Chairwoman VELA ́ ZQUEZ. I know that the committee staff has 

been working and having discussion with the Fed, including providing your agency firsthand accounts of the severe problems in 

small business financing market. If the Fed were to permit nonprimary broker/dealers to have access to a Federal lending facility, it 

could increase lawmaking to small firms. Would you make a commitment today to pursue this proposal? 

Mr. KROSZNER. Well, we are certainly looking at a wide variety 

of different proposals. I can’t make any particular commitments 

here. But as you know we have ongoing discussions on a variety 

of different facilities. 

Chairwoman VELA ́ ZQUEZ. Well, it is the same story this week before the Financial Services Committee with Secretary Paulson and 

Mr. Bernanke dealing with the issue of restructuring mortgage 

foreclosures. You continue to examine strategies. As I said that 

day, people are struggling, they are losing their homes. Small businesses are struggling and they are losing their businesses. We do 

not need for you to continue to study. We need actions this week. 

Mr. Chabot. 

Mr. CHABOT. Thank you, Madam Chairwoman. Mr. Kroszner, 

there has clearly been a tremendous amount of government involvement in all kinds of private sector entities in the last few 

months. Is it possible to go too far in that direction in trying to correct the current economic situation and the challenges that we face 

and thereby potentially adding additional and unforeseen problems 

later? Could we make it worse by getting this far involved or are 

we too far down the road now? 

Mr. KROSZNER. That is a very important question to make sure 

we are responding to the challenges, the real changes that both you 

as ranking member, Madam Chairwoman, have mentioned that are 

being experienced in the small business sector and throughout the 

entire economy. And so I think it is very important to be active and 

proactive right now. But we do have to be mindful of the programs 

that we put out to make sure that they help to restore market 

functioning in the short term to immediate term to support true 

12 

market functioning as we go forward. So I think we are very mindful of that in the design of the different programs. 

Mr. CHABOT. Thank you. Mr. Ramanathan, could you point to 

any instance in which the injections of capital to banks have generated substantial amounts of new lending to small businesses? 

Mr. RAMANATHAN. Let me take a step back and again mention, 

it was just about 25 or 30 business days ago—and I say business 

days casually because we have been working night and day on this, 

over weekends, you name it, to ensure that the core banking system is operating. Because without the core banking system the impact to small business, to consumers, to employment are tremendous. And without bank lending and without the major banks, 

whether this is a Main Street or a Wall Street issue it is not, it 

is our issue. And so strengthening that center core, ensuring their 

balance sheets are strong will rebuild confidence. And once that 

confidence is restored, we will see lending occur. 

We have seen, despite some of the comments that lending has 

not occurred, there has been lending that has been occurring. Recently this morning a major bank announced that is up 15 percent 

in the last just two months. So there is confidence building, but the 

loans are going to be made on a prudent and sound basis. I would 

expect, and Governor Kroszner is probably better aware of some of 

these issues, but the way in which liquidity will filter down to the 

system will occur but it will take time. 

And I come back to a point, and perhaps earlier I didn’t have a 

chance to discuss this, but we have taken extraordinary actions, 

aggressive actions to ensure that the stability of the financial market, that it stays intact. Before we attack specific problems of specific sectors we need to make sure that companies can pay their 

payrolls, that you can get cash at your ATM machines, that your 

checks can be cashed and that your payrolls can be met. The commercial paper facility was a major impact in terms of protecting 

and ensuring that banks can lend and that companies can lend and 

meet their payrolls. Interbank lending guaranteeing a bank’s debt 

for 3 years had a tremendous impact in ensuring that liquidity flew 

through the system. The AIG stabilization which took place that is 

a significantly systemic institution had tremendous repercussions 

by focusing on it and ensuring that it made sure it was stabilized. 

And when I talk about the money market fund guarantee, I don’t 

take this lightly. Within a couple days, the U.S. Treasury came up 

with a solution to stop what could have been a $200 billion or $500 

billion run in money market funds which impacts every single one 

of us. We are very interested in making sure that the financial system stays intact, as are our counter-parties abroad. And we do believe when you talk about LIBOR, which has been talked about 

quite a bit, it is an exotic term, but LIBOR, London Interbank Offered Rates, are present in every mortgage term sheet, in every 

mortgage contract out there. That is how you base your benchmarks for loans. That loan was at about 5-1/2 percent at a peak 

earlier this year just about 4 weeks ago. It is at close to 2 percent 

now. We have made tremendous strides. While we look at the equity markets going up and down, there is a lot going on behind the 

scenes that we may not recognize immediately. 

13 

Mr. CHABOT. Thank you. Madam Chairwoman, because we have 

so many members here, I will yield back and let them question. 

Chairwoman VELA ́ ZQUEZ. Thank you. Mr. Sestak. 

Mr. SESTAK. If I could—I am sorry I missed your comments. I 

wanted to wait to see how the vote came out on Waxman-Dingell. 

My question, I guess, has to do with the Chairman’s comment that 

a lot of people are losing their homes. And I do appreciate your 

comments about LIBOR. Actually, I think it actually hit 6.2 percent for a while and 50 percent of all credit cards, all credit cards 

are tied to LIBOR, and 50 percent of all arms. And that is what 

I am interested in, is the small businesses and the, let us say, 

loans, mortgages. My take on this issue that we are in is you have 

to start to fix the lending problem. 

The first week in October was the first time in the U.S. history 

of this Nation, no bond was ever issued for a whole week. So I understand what you are talking about at this macro level, we have 

got to fix the lending problem. But my take on this is that with 

85,000 homes going into foreclosure in October, a 25 percent increase from a year ago, and 3 million homes are in default at an 

annualized rate, that the bills we have is that trying to stop this 

foreclosure problem is really the long rail that you have to have for 

the economy. 

And by stabilizing the housing market, you will finally stabilize 

the economy. You have lending going, but this cycle of foreclosures 

that house prices stop, people got out, no one is buying homes. My 

take on the bills that have passed here, the FHA reform, although 

we had hoped 500,000 people might take advantage of it, you know 

where we wrote it down, to say to date appraisal is 90 percent of 

today’s market value, probably only 200,000 people are going to 

take advantage of that, or small mortgage brokers or whoever owns 

the—and I understand we have kind of nationalized the Fannie 

and Freddie, so we can make some credit more available so that 

would help. 

But my take on it is much more needs to be done in this housing 

area, which will go a long way toward small businesses. And I 

would be interested first in Treasury’s comment on that and yours, 

because there has been this debate in the administration. I think 

the FDIC has talked about it, maybe I have the wrong agency. But 

my take is this is really an area that has so much to do with small 

businesses and communities and school taxes as we stop having 

blighted neighborhoods. But until we address this issue, which I 

don’t think we have done in a comprehensive way, we are really 

going to have a rail going out there that is not joined up to stabilizing this overall economy. Could you comment on that? 

Mr. RAMANATHAN. Yes, I would be pleased to. Your point, sir, 

very valid regarding the fact that this economic downturn is being 

prolonged by what is going on in the housing market. We have had 

2 years now approximately of housing market declines. 

Mr. SESTAK. Two years of? 

Mr. RAMANATHAN. Of housing price declines approximately. Since 

last year, Treasury has attempted to tackle this issue on a number 

of fronts. When we discuss HOPE NOW, a volunteer program, it 

has helped 2 1/2 million Americans to date, that is not a small 

number. And we would expect 200,000 more per month going forVerDate Aug 31 2005 16:53 Dec 18, 2008 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\45310.TXT RUSS
14 

ward. We have put Fannie and Freddie Mac, as you mentioned, 

into conservatorship, the FHFA has. And at the same time, we 

have offered confidence in that market. 

Mr. SESTAK. I know what we have done. My question is we have 

85,000 foreclosures last month, a 25 percent increase over a year 

ago, despite all your efforts and Congress’. What needs to be done? 

Mr. RAMANATHAN. We have—I would say this: The recent actions 

by the GSEs, as well as several major banks to have streamlined 

modifications is a very good step in the right direction following on 

the examples that the FDIC put in place with IndyMac. We are 

going to see the fruits of those type of actions in the near future. 

When we see the private sector taking over some of the practices 

that the public sector has implemented that is a very good sign, 

and I think that is going to spread as well. 

Mr. SESTAK. So basically you are okay with status quo, yes or no? 

Mr. RAMANATHAN. No. I think at this point we are, as Secretary 

Paulson mentioned, we are exploring all of our operations. We are 

very interested in Sheila Bair’s plan. We need to discuss that further. But as I said, we are never satisfied with the status quo. 

Mr. SESTAK. Sir, could you answer the same question, because 

we are at our 32-month, consecutive month, despite all the great 

actions by Congress and the executive branch, of where each of the 

months has been greater in foreclosures than the same corresponding month a year earlier. Could you tell me if you kind of 

feel good about the present plans we have going on in view of that 

every month it is getting worse? 

Mr. KROSZNER. This is an incredible challenge, and I have done 

a lot with the Fed to travel around the country to see the on-theground challenges in a lot of different districts. In Cincinnati, for 

example, I was there with the uptown coalition and saw the incredible challenges in these neighborhoods. So what you talk about is 

very real. These are not just large statistics, but these are really 

affecting individual homeowners. And I do think that we can definitely be doing more. 

Mr. SESTAK. What would that be? 

Mr. KROSZNER. Well, I think we have just had some new proposals from Hope For Homeowners, and the approaches that they 

are taking there that may involve some principle write-downs, I 

think those were just announced in the last few days, and so I 

think they have some potential to be helpful. I think we do need 

to do more streamline— 

Mr. SESTAK. That was the legislation that we had passed, if I am 

correct, back with the Fannie and Freddie and all they did was implement the procedures. You know, they went from 90 percent and 

they said, by the way, if you make more than $100,000 some now 

it is 96 percent, that is just implementation of the same rules, that 

is nothing new. 

Chairwoman VELA ́ ZQUEZ. The time is expired. If the gentleman 

will yield for one second. Ms. Bair from FDIC she has a proposal 

on the table that is a drop in the bucket, $25 billion. While you are 

studying what the next proposal is going to be she has a plan. Why 

can’t you take on that plan? Why can’t you support that plan? 

Mr. KROSZNER. Well, I think the Chairman described earlier this 

week, we have been in very much a lot of discussions with the 

15 

FDIC and the other agencies to come up with a most effective plan. 

I think he had noted there are some design issues that still have 

to be worked out. 

Chairwoman VELA ́ ZQUEZ. How long do you think it is going to 

take for you to come up with a real plan that will tackle the issue 

of foreclosures? 

Mr. KROSZNER. Well, we are trying to tackle them in a variety 

of ways. I can’t give you a specific timetable but we are working 

expeditiously. 

Chairwoman VELA ́ ZQUEZ. Mr. Westmoreland. 

Mr. WESTMORELAND. Thank you, Madam Chairwoman. I want to 

thank you for having this hearing. And let me say I don’t really 

know where to start from having talked to my small business people and my small bankers, but you two gentlemen need to get out 

more. And you need to take Mr. Bernanke and Mr. Paulson with 

you. And you need to walk around some town squares. I invite you 

to Newnan, Grantville, Thomaston, Barnesville, to get to talk to 

people, because from what I hear you saying, you think this is 

working. And I can tell you right now that the majority of my constituents don’t think it is working. 

We were told by Secretary Paulson this is something that had to 

be done immediately on September 19th. 17 days later is when it 

passed. We said did you look at any alternatives? No. Do you know 

that this will work? No. Now, those are two answers that I think 

were truthful. But now we are looking at other alternatives. Things 

are going in a different direction. This thing is changing on the fly, 

yet some of these things were never looked at prior to. 

And let me tell you about some of the things that is going on in 

the real world. What is going on in the real world is that I have 

got bankers that I met with at different events that tell me that 

the only way that they want some cash from the TARP program 

is so they can buy smaller banks. I am not seeing any relief from 

the smaller banks. I have community bankers calling me every day. 

We need to look at some things that we can help immediately with 

them. We need to look at the mark to market. And I know there 

was some proposal in the bill, or at least the SEC said they were 

going to look at it. You should be demanding the mark to market. 

Because what is happening, if you think the home foreclosure rate 

is bad right now, you take the builders and the developers that 

have had relationships with these small banks, and we have every 

different type of regulator come in from these—we need to consolidate those regulators. Because they have come in and say, look, 

you need to get this guy to put in more capital. If they put in more 

capital, they are going too lose all the other properties. This thing 

is going to snowball. It is going to become enormous. 

You have got to look at some things other than giving these big 

banks cash to make this system work. And you can do that partly 

with your regulators and you can do it partly with the mark to 

market. There are a lot of things that you can do immediately to 

help these situations. For some reason, we have a government and 

we have agencies that think that the only way that they can help 

is to throw money at something. Well, you are throwing money in 

the wrong places. You need to get out and you need to talk to the 

real world and find out exactly what is going on. People are hurtVerDate Aug 31 2005 16:53 Dec 18, 2008 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\45310.TXT RUSS
16 

ing out there. These foreclosures are great, but we are not doing 

anything for immediate relief on them. We are not doing anything 

for immediate relief on the small businesses. I want to ask you, do 

you think that this money that you are giving to these banks 

should be used to acquire other banks rather than freeing up credit? Because the one story I heard continuously about the bailout 

was this traffic jam on the expressway. And until they got that 

wreck cleared out of the way the small business loan was behind 

it, the credit card bill was behind it. And the credit flow couldn’t 

get cleared until this wreck was cleared. The wreck has been 

cleared. The credit flow is not there. And the purpose of creating 

this highway, opening this highway to get the credit going back 

and forth, seems to be detoured, redirected. We are now looking at 

auto loans, credit cards and other things rather than looking at 

this small business. And what has happened is rather than the 

credit being freed up, the detour has come for now this money to 

be used to buy smaller banks. I want to hear what you think about 

that and if you found out that some of these banks were taking this 

money just to buy competitors and smaller banks is that the purpose that you originally, either one of you or your bosses, originally 

intended for this money to do? 

Mr. RAMANATHAN. Thank you for that question. Regarding the 

capital purchase program, which is what you are referring to in 

terms of capital injections in banks, I need to, I guess, step back 

again and say 31 business days ago, we started these injections, 

and they have reached over 60 percent of the deposits in this country. We have 3,400 banks in line now, small banks, first come first 

serve—not first come first serve. Any of them can apply. Applications are there. We are ready to provide funding to them if they 

ask. 

Mr. WESTMORELAND. For credit or for purchasing other banks? 

Mr. RAMANATHAN. For credit and providing loans to them. Now, 

the plan of the TARP was to, and remains. To stabilize the financial system. If a bank can make loans it is healthier, can get this 

capital and become a healthier bank with its balance sheets, with 

confidence rebuilding, that is a very good sign. If it can help the 

entire community by making a smaller purchase, that is a good 

sign to help stabilize the system. You don’t want one bank to do 

well and one bank to fail. We think that is something that would 

not be beneficial to a community. 

Regarding some of the other items you discussed, whether it is 

credit cards or auto loans, one of the points that Secretary Paulson 

made last week was a proposal, and that we are working on closely 

with the Federal Reserve, regarding securitization markets. And 

this a very important market which has seized up and has caused 

tremendous pressures to small business and banks. And let me just 

explain it very quickly. When auto loans and student loans and 

small business loans and credit card loans aren’t being originated, 

that is, banks cannot make these loans, cannot package them and 

resell them, they are all good loans, they are guaranteed by the 

government, many of them, and they are still not being purchased 

because there is no securitization market functioning right now, 

that is a problem. And so while we think the clog is unclogged, it 

is not unclogged. We are still going through this process right now. 

17 

We have a way to go. And we do believe—again, in this, I guess, 

day and age when we look at minute-by-minute stock ticks it has 

been 31 days and banks are lending on the top end and, they will 

be flowing to the bottom end. 

And I mention this again, we have close to 4,000 potential applications that can come in the next 3 weeks. We intend to go through 

them and we intend to ensure that small banks, community banks, 

thrifts have access to capital that they need that can be made as 

loans to small businesses. And I sincerely believe that. 

Chairwoman VELA ́ ZQUEZ. The time is expired. Mr. Shuler. 

Mr. SHULER. Thank you Madam Chair. I couldn’t agree more 

with my colleague from Georgia. It is time that we get off of Capitol Hill and we get into our small communities. I come from a region where the tourism business was very strong, our number one 

industry, that promotes the economy in our area to see the Great 

Smokey Mountain National Park, the Blue Ridge Parkway. The 

problem that a lot of my small businesses are having now is during 

the off season, if you will, through the wintertime when we don’t 

have the tourism, they are usually dependent and relying upon 

these lines of credits to be able to pull their businesses through the 

shortfalls in the wintertime until the spring, the summer and the 

fall picks back up, what is being done? 

Let me give you a little bit of a history. A lot of these lines of 

credits now are being called. They haven’t been tapping into them 

for the last 9 months, therefore, the banks just said let us just go 

ahead and call those banks. Now they don’t have access to these 

lines of credits. We saw a slowdown because of the gas prices. We 

saw a slowdown in our region based upon the tourism industry. 

So we saw about a 20 percent decline of the overall visiting of 

the parks, therefore we seen a lot of that in our small businesses. 

Their bank statements, their K-1s are certainly different this year 

than they were a year or two years ago. What is being done to ensure that these small businesses can have these lines of credits 

through the tough times in order to they can get back on pace once 

the economy picks back up or and in our particular situation the 

season picks up? 

Mr. RAMANATHAN. Once again, that was a very good question because it brings up a number of topics that are related. 

You know, I mentioned earlier Mountain First Bank in Henderson, North Carolina—I believe that is in your district—where we 

recently granted $200 million to a small bank with 165 employees. 

It has been there for quite a while. We believe these types of loans 

are going to filter down to the community, and we are actively 

looking to make those types of investments. 

Let me also step back and mention, back in February and March, 

Congress, along with Secretary Paulson and the administration, 

passed a $168 billion stimulus program. While at the time that was 

viewed as small or perhaps early, given the high energy prices and 

given what happened to gas, it was particularly timely, in some 

ways preventing us from earlier potential problems. Every $1 drop 

in gas prices equals roughly $100 billion in additional stimulus. So 

I would imagine this will also filter down to small businesses. 

When we look at other companies like, again, in your district, I 

believe it is Thermo Fisher and BorgWarner, and there are a lot 

18 

of other smaller firms out there who depend not just on tourism 

but other industry or businesses, we want to make sure they can 

meet payroll, they can get loans, and they can make sure that they 

function on a day-to-day basis. These capital investments will help 

that. 

And once again, I mention again, 31 days since we have been out 

there doing this. It will reach many, many firms in your district 

and others. 

Mr. KROSZNER. I agree very much that it is very important to get 

out, and I have been trying to do that as much as possible. I have 

been to a variety of cities around the country—Cincinnati, Cleveland, Atlanta, Boston, Philadelphia, and quite a few others—where 

they are facing tremendous challenges in the housing markets and 

for small businesses. And so I think it is extremely important to 

try to provide the macroeconomic support so that there is sufficient 

demand for the small businesses. 

You had mentioned that your area has a lot of tourism and that 

tourism demand has been going down. Unfortunately, demand has 

been going down in a lot of different areas. And so, perhaps one 

of the most effective tools that the Federal Reserve has is monetary 

policy to try to provide some stimulus to the economy or at least 

some offset to the reduction in demand. 

And, as you well know, we began cutting interest rates more 

than a year ago and aggressively did that in January of this year 

and have done so again over the last 2 months. 

So I think, as a complement to the specifics of trying to restore 

confidence in the banking system, provide liquidity to the system 

so that the banks have the wherewithal to be able to lend. Providing that sort of macroeconomic support is extremely important. 

Mr. SHULER. Madam Chair, I know I have just a couple of seconds. 

So how long can I tell my small businesses and my community 

banks they are going to see relief? And we are talking about business days here. How many more business days is it going to be before I can tell my small businesses, ′′Hey′′—it is a trust factor. And 

that is the reason I didn’t vote for the bailout, I didn’t trust it. And 

now they are not trusting the system, as well. 

How many days are we looking at? 

Mr. RAMANATHAN. I can guarantee you that civil workers and 

ourselves and our staffs are working night and day to ensure that 

we get through the applications that are coming through all of your 

districts, to ensure that they get the credit they need. I can’t put 

a date and I won’t speculate on a date for it. But, again, as the 

bank in your district has noted, we do act and we will act aggressively. 

Chairwoman VELA ́ ZQUEZ. I guess, Mr. Shuler, that we all should 

feel very good about the fact that the bank in your district, a small 

bank in your district, got $200 million, while the biggest bank got 

$290 billion. 

And my frustration here is still there are 6,000 community 

banks, small banks out there that have not seen any money at all. 

And they are struggling because they lack liquidity at this point, 

since it is not trickling down like you promised us. 

I will recognize now Mr. Gohmert. 

19 

Mr. GOHMERT. Thank you, Madam Chair. And I also appreciate 

you having the hearing, and appreciate you all coming up here to 

the Hill. 

We, of course, back in the late days of September, saw and heard 

plenty from Secretary Paulson and Chair Bernanke. 

But anyway, I would like to identify myself with the comments 

of my colleagues. I think it sounds like we are very bipartisan in 

our feelings on this. 

But I would hope that the Treasury Department—of course, you 

know, your days of this—the leadership in this Treasury Department are coming to an end. But I hope there has been some valuable lessons learned. 

For example, when the Secretary of the Treasury comes out and 

says, in private conference with Members of Congress, when he 

knows information is going to go out and says publicly, ′′Gee, we 

are about to have a stock market crash, a depression, this terrible 

economy,′′ it becomes a self-fulfilling prophecy. It does. And I hope 

that people will learn from the mistakes. 

Our economy in east Texas, much of it rural, I was constantly 

checking with home builders. We never overbuild. We didn’t have 

the explosion in growth, so homes were modestly priced, and home 

builders were still going good until the crying out from the Fed, but 

especially the Secretary of the Treasury, who should have known 

better. You can’t go in a theater and scream ′′fire,′′ and especially 

you can’t go in a theater, lock the doors, and say, ′′If you don’t give me $700 billion, you are all going to go up in flames.′′ You can’t 

scare a volatile market like that. 

Because what has happened now, in my banks, where they had 

plenty of money, they are hesitant to loan it, because they want to 

see if Secretary Paulson knew what he was talking about when he 

says, ′′We are in big trouble. Oh, it is going to be bad.′′ So everybody has frozen their credit. 

We have people who were going—September was not a bad 

month for car sales in my district until Secretary Paulson goes out 

and scares people, and they begin to say, ′′Gee, maybe we had better not buy a car right now.′′ Builders were saying after Paulson 

went public, then they got calls saying, ′′We are going to hold up 

building right now because the Secretary says we are in for a big 

depression unless you give him $700 billion.′′ 

And I know it may have been a shock to some like Secretary 

Paulson and the administration that people actually believed him 

because of some of the past things that have been said and done 

and occurred, but people did. They said, ′′We better wait and see 

if he knows what he is talking about.′′ You can’t scare the stock 

market like that. 

And then we had people coming up here, economists, saying, 

′′Well, gee, fix the mark-to-market rule and you don’t have to lose 

these banks,′′ and then the Treasury Secretary telling us, ′′Gee, 

once these banks start falling, it is going to be dominos; you can’t 

stop them.′′ Well, there is self-fulfilling prophecy in that. 

But the other thing, I hope there was a lesson learned. And I 

would like to think that there was nothing in the way of mens rea 

behind the comments. But when the Secretary of the Treasury 

says, ′′We are in an emergency situation, but we are going to stand 

20 

good for every dollar in money market accounts; and over here in 

the most solid area, not the investment bank, but the community 

commercial banks, you are only going to be good for $100,000 that 

the government stands behind,′′ he surely knew what was going to 

happen: the huge run he created on the most solid part of my economy in east Texas and in much of the Nation, who were not involved in the MBSes and some of these other things. But he caused 

a huge run on my banks, where people who had more than 

$100,000 came in, took it down to the $100,000 level, and then 

transferred it to Mr. Paulson’s former or current friends on Wall 

Street in the money markets. 

He surely had to know that, when he came out screaming ′′fire′′ 

and said, ′′But we are going to have a safe haven in money markets, but only good to $100,000 in the banks,′′ he would cause a run 

on banks. I hope future administrations understand that is not 

something we can do. 

And I realize my time is running short. But I would like to ask, 

now that some damage has substantially been done, I believe, by 

some of the pronouncements—and, by the way, I have two bills I 

have filed today. I don’t know if they will get to the floor, but I 

would like to cut off the last $350 billion of authority that Secretary Paulson has and just—and my bill is not a resolution, just 

′′you can’t spend any more.′′ 

One of them, I hope, would get bipartisan support because I am 

open to using it for infrastructure, because the Constitution says 

we post roads in Congress, build it for—whatever. And another 

says, we will use the private market concepts of encouraging 

things, encouraging investment. 

And then, also, a bill dropped today that takes President-Elect 

Obama at his word, and it says if you make less than $250,000 and 

you go buy a car in the next 6 months, you get a $1,500 tax credit. 

If I could just ask, is there anything immediately that would be 

done with the money that the Treasury has in the slush fund that 

would go toward SBA loans immediately? 

Mr. RAMANATHAN. Thank you for the comments. But, yes— 

Mr. GOHMERT. I am not sure it is what you wanted to hear, but 

it sure is on my heart. And it is not just emotional, it is in my head 

and heart. 

Mr. RAMANATHAN. I appreciate it. And, as I said, in Tyler, I know 

there are a lot of issues going on, and you have your frustrations, 

and you shared them with us as well. 

With the SBA market, the Small Business Administration loans, 

as you know, the way this works is a lender makes a loan to a 

small business; the lender’s loan is then guaranteed roughly up to 

80 percent by the Federal Government. 

As Governor Kroszner mentioned, demand for such loans has actually decreased as the economy has gone lower. At the same time, 

the cost has gone up, because the securitization markets have frozen up. 

So one of the items that was mentioned that could be potentially 

very helpful is using part of the funds in the Troubled Asset Relief 

Plan that could be used as a securitization vehicle. What does this 

mean? 

21 

Chairwoman VELA ́ ZQUEZ. And what about, sir, if I may, including 

pools of small business loans? 

Mr. RAMANATHAN. Yes, that is what I was getting to. 

Chairwoman VELA ́ ZQUEZ. Okay. We have been proposing that for 

the longest now. 

Mr. RAMANATHAN. Yes, and now we have the authority to actually— 

Chairwoman VELA ́ ZQUEZ. No, you always had the authority— 

don’t—you had the authority, sir. 

Mr. RAMANATHAN. The Small Business Administration is different from Treasury. We— 

Chairwoman VELA ́ ZQUEZ. The Secretary of the Treasury has the 

authority to include small business loans within the definition of 

troubled assets. 

Mr. RAMANATHAN. Correct. And we are working with the Fed, 

creating a program that will promote the securitization of these 

products—not just these products, auto loans, credit card loans, 

student loans. 

Let me take a step back. Student loan markets—student loans 

are 97 percent guaranteed by the Federal Government, and no one 

is buying them right now. 

Chairwoman VELA ́ ZQUEZ. Sir, time has expired, but let me ask, 

when are we going to see that? 

Mr. RAMANATHAN. We are working on it, and when the—as I 

stated, we are working on it expeditiously. So when we roll it out, 

it will be well-functioning and it actually impacts the most individuals out there. 

Mr. GOHMERT. Madam Chair— 

Chairwoman VELA ́ ZQUEZ. Since September, we have been discussing this issue with you, and you still continue to further discuss it and examine it? 

Mr. GOHMERT. Madam Chair, if I might mention to you and in 

case there is anybody here who has not read the authority that 

Secretary Paulson has, that authority is what scared me about the 

bill, is so broad. I don’t think Congress has ever since 1787, the 

new constitution, given that much authority. If he wanted to put 

money in the SBA, he could put it there, he can put it in foreign 

banks, he can buy whatever he wants to. If he wants this program 

to go, right now he has an incredible amount of authority to do 

that. And if anybody is not aware of that, including the Secretary, 

he needs to read the ′′dad-gum′′ bill, because he has that kind of 

authority. 

Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Ms. Clarke? 

Ms. CLARKE. Thank you very much, Madam Chairwoman and 

Ranking Member Chabot, for holding this very timely and important hearing. 

Thank you, gentlemen, for coming and bringing as much information as you can. 

I have to tell you that I was elected in the 110th session, and, 

since I have been here, I have heard of the creation of so many programs to help small businesses that have yet to be implemented. 

So, you know, it is very hard for us to sit still and hear about the 

22 

dynamic taking place within the Treasury of creating a program 

and not having a timetable, not coming with clarity about how it 

is going to be implemented and when it is going to be implemented, 

particularly in a time of crisis, with all due respect. 

As we all know and we are too keenly aware, small businesses 

remain the linchpin of the U.S. economy because they are the foundation of our country’s job markets and an essential element of job 

creation, providing close to 80 percent of employment opportunities 

for Americans. According to the Commerce Department’s Minority 

Business Development Agency, about 3 percent of all minorityowned businesses generate more than $1 million in revenues annually. 

Unfortunately, the financial crisis has created a catalyst for 

much broader and complex economic problems. At the same time, 

the Federal Reserve has reported that domestic banks said that 

they tightened their lending standards for small business loans 

over the previous 3 months in July and said they were charging 

more for these loans. 

I am from New York City. This uncertainty, created by home 

price declines and financial market stress, has been detrimental for 

New York’s economy. And jobs leveled off in New York City, and 

little has changed since that time. Our emergency economic recovery plan has not stabilized the financial markets the way that 

Treasury Secretary Paulson and President Bush had hoped. Despite the $700 billion recovery plan for financial institutions, which 

was supposed to encourage commercial banks to start lending 

again, getting a loan these days is still extremely difficult, even for 

those with immaculate credit ratings. 

In order to improve these economic trends, we must continue to 

implement sound policies that are expedient and timely. That goes 

to the whole question of creating policy and implementing it. And 

I am just, kind of, frustrated by the fact that I have just heard 

about so many programs and none of them have been implemented. 

And if perhaps we had looked at expediting them earlier on, perhaps there would be some fluidity within our markets at this time. 

But I am particularly concerned about women- and minorityowned business. What has been the impact of the current financial 

and credit market dislocation over small businesses, particularly 

women- and minority-owned business, the most vulnerable of the 

entrepreneurial ecosystem? 

Mr. KROSZNER. Thank you very much. 

This is something, of course, that is extremely, extremely important, to make sure that all entrepreneurs, women- and minorityowned business entrepreneurs, make sure that they have access to 

credit. So that is something that is very important. And they have 

been very much affected, as we have been discussing the smallbusiness owners have been affected. 

From our 2002 survey of business owners for African Americanand female-owned businesses, personal or family assets tend to 

contribute about as much to the capital needs of the start-up of 

businesses as did business loans. So the challenges in the housing 

markets are extremely important for this segment of entrepreneurs. 

23 

The survey also documents that African American- and femaleowned businesses tend to rely both on personal and business credit 

cards. And so that is why trying to make sure that people do have 

access to credit, trying to stabilize the markets to provide a sound 

liquid financial system that can provide lending, can provide some 

stability to the housing market is extremely important, because 

these are businesses that are very much affected by the macroeconomic turmoil we are facing. 

Ms. CLARKE. It is great to know that you, sort of, have a handle 

on, you know, what the problem is. And I think what we are trying 

to get here are, you know, what are the mitigation factors taking 

place as we speak that are going to assist these business owners? 

And we are not getting that from you. 

And I think that some of what you are hearing today—I want to 

know, is there evidence that the current credit and financial crisis 

related to the mortgage markets is disproportionately affecting 

minority- and women-owned businesses? Have you seen the evidence of it? Are there numbers coming in to you so that you are 

clear on the extent of the impact? 

Mr. KROSZNER. We are certainly looking at exactly these kinds 

of issues and gathering data at the local level throughout the Federal Reserve system to try to asses exactly these kinds of issues. 

As I noted from our earlier surveys, they suggest that womenand African American-owned businesses tend to rely more heavily 

on using their housing. And, obviously, housing having such a challenge suggests that, even though we don’t have the final data in, 

that these groups of entrepreneurs are affected very much. 

Ms. CLARKE. So are there mitigative measures that are in the 

pipeline or that are ready to be deployed, knowing that this particular sector has relied on that methodology of entrepreneurship? 

Are we doing anything currently to mitigate the impact and the 

blow to their ability to continue to operate in our system? 

Mr. KROSZNER. That is something that is very important, and so 

what we are trying to do is, by providing confidence in the financial 

system, by providing liquidity in the financial system, that that 

will allow borrowing to take place, to the extent that they do borrow. And we are certainly trying to work on a variety of loss-mitigation and foreclosure-mitigation techniques, working very closely 

with industry. We have Hope for Homeowners. We have the HOPE 

NOW Project. 

Ms. CLARKE. I understand that. But we know that these groups 

have historically not been able to go the traditional route for financing for their businesses. That has been a longstanding challenge, historically. Why are we looking at those measures now, 

when we know that is the X factor for those businesses? They can’t 

and have not been able to access the traditional lending institutions, as the majority has. 

Is there something being done to focus on these businesses specific to the nuances of how they access financing? 

We know how they access financing. It is not the traditional 

route. And what you are working on right now is freeing up those 

banks that have historically not lent to these businesses. 

Mr. KROSZNER. Well, it is very important to try to continue to 

have credit provided so that people who use credit cards—as I menVerDate Aug 31 2005 16:53 Dec 18, 2008 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\45310.TXT RUSS
24 

tioned, a lot of financing comes through business and personal 

credit cards—make sure that that market operates as well as it 

can, because that is certainly very important for providing credit 

to these important groups of entrepreneurs. 

And also the personal assets in housing is very important. And 

so the variety of foreclosure-mitigation programs and loan-modification programs will be focused exactly on these groups that rely 

most heavily on that rather than rely on traditional bank lending. 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Ms. CLARKE. Thank you very much, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Mr. Michaud? 

Mr. MICHAUD. Thanks very much, Madam Chair and Mr. Ranking Member, for having this hearing. 

And I want to thank our panelists. 

I have a couple of questions. 

When you look at freeing up credit to help small businesses, have 

you looked at credit unions. For instance, they are subject to a cap 

on the amount of loans that they can give to businesses to 12.25 

percent, yet they do have the resources to give loans out. 

Have you looked at that area to free up credit for businesses? 

And, if not, why not? 

Mr. RAMANATHAN. I think that is a question for the regulator, actually. We are working, though, with the 2,500 S-Corps out there, 

as well as the 625 mutuals— 

Mr. MICHAUD. Do you think it is a good idea? I mean, if you are 

trying to get credit to businesses— 

Mr. RAMANATHAN. I think it is a good idea to give credit to businesses. I can’t opine on what the correct ratios should be. 

Mr. MICHAUD. I mean, do you think it is a good idea that they 

are limited by regulation or statutes to a cap. Increasing the cap, 

whatever the number is, whether it is 15 or 20, why wouldn’t that 

be a good idea? 

Mr. RAMANATHAN. As I said, I think it is a good idea to lend to 

business. I don’t know how all of that works, but I can look at that 

and get back to you. 

Mr. MICHAUD. Okay. 

Mr. KROSZNER. And so, again, it is a complex set of different regulations that interact, with some safety and soundness issues and 

also credit provision issues. And so, to discuss the specifics of it, 

I would need to get back to you on that. 

But I very much agree that lending to credit worthy borrowers 

is exactly what the Federal regulatory agencies want the banks to 

do and are encouraging them to do. 

Mr. MICHAUD. My second question, I have heard from constituents that when you look at the interest rates on some credit cards 

they are as high as 35 percent? Do you think that you ought to look 

at what they are actually charging for interest rates on credit 

cards? 

It is important to have credit, but here again you don’t want the 

gouging that currently appears to be happening. I would like both 

of you to comment on the high interest rates with which some credit card companies are gouging their customers. 

Mr. KROSZNER. Well, as I think you know, we at the Federal Reserve have put out a significant set of regulations, or proposed regVerDate Aug 31 2005 16:53 Dec 18, 2008 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\45310.TXT RUSS
25 

ulations I should say, using their unfair and deceptive acts and 

practices authority, as well as changes in disclosure regulation, to 

try to address a variety of issues in the credit card market. 

And we continue to gather data and monitor that market very 

carefully. And we hope to be proposing those new rules—we are finalizing those rules before the end of the year. 

Mr. MICHAUD. Does the Treasury have any comment on that? 

Mr. RAMANATHAN. Well, I think, regarding credit cards and higher rates, what we are seeing here—I mention, again, we are still 

in the midst of a crisis. We are still seeing pressures on rates in 

certain sectors and a freezing of credit in certain markets. 

And what Secretary Paulson mentioned last week regarding the 

securitization markets and the roughly $1 trillion of nonmortgagerelated assets out there that are affected, amongst them are credit 

cards. 

As credit card securitization is frozen up, rates do rise. It is the 

same for student loans, auto loans, SBA loans. If we can help impact that market, unfreeze some of that credit through some of our 

actions, it will benefit, and it will benefit in terms of credit card 

rates. 

Mr. MICHAUD. You had mentioned that a lot, when you look at 

the market, has to do with confidence. And we heard earlier about 

the affect on the confidence of the Treasury Secretary coming out 

with his remarks—I mean, that does not instill confidence in the 

market or, quite frankly, confidence that I have in the Secretary 

of the Treasury. It is just the reverse; the same way with 

Bernanke. You do not go on television and say, ′′If you don’t pass 

something by X date, then we are going to have a meltdown in the 

market.′′ That is just inexcusable, and it does not instill confidence. 

Actually, to me, it is incompetence on the part of both of those individuals. 

What are you doing to encourage the Securities and Exchange 

Commission to look at the mark-to-marketing rules? What is happening in that particular area? 

Mr. RAMANATHAN. With regards to the SEC, I won’t speak for 

them, but I know they are exploring the issue and how it is going 

to work. 

With regards to confidence, I come back to, again, a point about 

what was occurring in September and October, where no corporate 

debt was issued— 

Mr. MICHAUD. Well, I don’t need you to defend the Secretary. I 

mean, that is my personal opinion and the opinion of alot of Members of Congress, about his actions. 

On the mark to marketing, the Federal Reserve, what are you 

doing to encourage them to move forward in that particular area, 

if you think they should? 

Mr. KROSZNER. Well, certainly there are studies that are going 

on, I think one that was required through some legislation to be 

looking at that. And so we provide whatever technical support is 

necessary to be able to get the right answer. 

Mr. MICHAUD. I see my time has expired. I just would encourage 

you to do more, because the confidence is not there, and it is still 

not there. And until we have confidence in those who are running 

26 

these programs, the market is going to—you are going to see it continue doing what it is doing. 

Chairwoman VELA ́ ZQUEZ. Mr. Cuellar? 

Mr. CUELLAR. Thank you, Madam Chair. 

I thank both of you all for being here with us. 

I would like to focus on the smaller banks, community banks, the 

independent banks. I have a lot of those in my congressional district. And I think you have some stats on everybody here, so if you 

can start looking at District 28, if you have those numbers. 

But I am interested in the small, independent community banks, 

because they, on a day-to-day basis, they do interact with the small 

businesses. So they do have that direct impact with the small businesses. 

But as you all have expanded, I guess you call it, the Capital 

Purchase Program to the smaller banks, we have been in contact 

with your office, with the Department of Treasury, and we understand there is about 46 small banks who are all in the same situation where there is a timetable involved with the shareholders’ 

means that they need to have. 

And what my bankers are complaining about, and one in particular in my district, is saying, ′′Look, supposedly there is a crisis, 

and the Secretary has said this, and they want us to move quickly. 

We put in our application, but all of a sudden everything stops, and 

we haven’t been able to do this.′′ We called, and I will say, your 

department, and they keep saying, we can’t give you a timetable. 

And then we have to face our constituents, our bank presidents, 

and tell them, ′′I can’t get you an answer.′′ ′′Well, what do you 

mean you can’t get us an answer?′′ ′′I can’t get you an answer. The 

Department won’t give us an answer.′′ 

What status do you have on those small community banks that 

want to participate, that want to lend to small businesses? How 

fast can we move that particular program to the smaller banks? 

Mr. RAMANATHAN. As I said, this is very important to us here at 

Treasury. Having been involved in this, I see the flow of applications. And one of the important things to notice, from October 14th 

to November 14th, we opened this to public banks, and we received 

a number of applications, many which we have already gone 

through and vetted. They have gone through the regulators, the 

primary regulators; then they are sent to us. We vet them, and we 

provide capital if necessary. 

Regarding the smaller banks, the privately held banks, again, 

there are roughly 3,400, a number in your district, as well. That 

application process went up on Monday, just 3 days ago. It is open 

for another month. It is not on a first-come, first-served basis. Anyone can apply. And we have adequate capital to provide to them. 

We have gone through and we expect thousands of applications 

over the next couple weeks, which we will be working on night and 

day. And when I say that, I say that seriously. We will be working 

on them. We are going through them as fast as we can. So are the 

regulatory agencies, who are stretched right now to the limits. Civil 

workers are working night and day, as well, to make sure these are 

processed, sent to us. We are working night and day with our staff 

to make sure they are processed out. 

Chairwoman VELA ́ ZQUEZ. Will the gentleman yield for a second? 

27 

Mr. CUELLAR. Yes. 

Chairwoman VELA ́ ZQUEZ. Can you tell me how long it takes once 

an application goes in, small community banks or independent 

banks, how long it takes, the whole process? 

Mr. RAMANATHAN. I can’t cite a specific example, but the process 

works in a very simple manner. A community bank goes through 

their local Federal regulator, which is one of four items: the OTS, 

the FDIC, the Federal Reserve, or the OCC. They review the application and decide whether they should move this forward to our 

committee or whether they should deny it. It is all done confidentially, so there is no stigma attached, which is what we want. We 

review those, process them. It goes through our staff, and then it 

is either approved or disapproved. 

Chairwoman VELA ́ ZQUEZ. But— 

Mr. RAMANATHAN. I guess to give you an idea, 107 applications 

went out roughly in 31 days. We are moving as fast as we can in 

this process. 

Chairwoman VELA ́ ZQUEZ. But, given previous applications that 

you processed already, can you give us a timetable, in terms of how 

long the process takes? How does it— 

Mr. RAMANATHAN. It moves very quickly. To the best of our ability and, again, vetting and going through the regulators—and, 

again, it has to go through the regulators— 

Chairwoman VELA ́ ZQUEZ. Does it move as quickly as it moves for 

the 10 biggest banks? 

Mr. RAMANATHAN. It moves very quickly. 

Chairwoman VELA ́ ZQUEZ. Thank you for yielding. 

Mr. CUELLAR. Thank you. 

Do you have—at least if you can help us, so we can be able to 

relate something. Could you designate somebody in your office— 

and we get Congressional Affairs, I understand that. And they keep 

telling us the same thing, ′′Can’t do it, can’t get you the information.′′ Could you designate, at least to the members here, somebody 

that we can call so we can get an answer? 

And I understand, you know, we are all overworked, and I understand all of the time constraints and the pressure. I understand 

that. But, at the same time, we have to be able to relay some information to our community banks. So could you all designate somebody that we could talk to? 

Mr. RAMANATHAN. We will try to do that, yes. 

Mr. CUELLAR. But I am okay with Congressional Affairs, but I 

need somebody that can tell me something more than, ′′We will get 

back to you.′′ 

Mr. RAMANATHAN. Okay. 

Mr. CUELLAR. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. And the Chair recognizes Mr. Westmoreland. 

Mr. WESTMORELAND. Thank you, Madam Chair. 

The mortgage-backed securities was supposedly the wreck on the 

expressway. And the auto loans and the student loans and the 

small business loans and the credit card was behind the wreck. 

And we were going to clear this wreck out to get these things moving again. But it seems to me like now we are just going to leave 

the wreck there and reroute the traffic that is behind it. Because 

28 

what I hear you saying is that is kind of what the plan the Secretary has got now. 

Mr. RAMANATHAN. That is not the plan. We have $250 billion allocated to the Capital Purchase Program, of which we have disbursed $158 billion. We continue and we expect to disburse the rest 

to local community banks, banks across the Nation, both small and 

large, to ensure that credit flows. 

Since the passage of the legislation, as you have noted and your 

committee has noted, things have deteriorated significantly. Washington Mutual failed. Wachovia nearly failed. A number of other institutions were pushed to the brink. 

We did our best to ensure that the financial system remained intact. And I continue to emphasize this: Your ATM machines continue to work. Your checking accounts, you can still draw on them. 

You still get your payrolls. That is the type of financial stability we 

have provided. 

We are still in the middle of this, and there will be problems 

along the way. We mentioned securitization as another way to help 

consumers and small businesses, and we are going to look at that 

very closely. 

Mr. WESTMORELAND. But these toxic loans, they were supposedly 

the cause of all this, and yet there has been, I feel like, very little 

done to help that situation. 

But I do have a list of questions from some of the banks that are 

on the courthouse squares in some of these small towns that I represent. 

And, Madam Chair, I would like to submit those to the witnesses, if I could, and expect an answer to those that I can get back 

to my constituents on. Because I don’t have time ask all of those 

questions to you. 

Chairwoman VELA ́ ZQUEZ. Without objection, so ordered. 

Mr. WESTMORELAND. And with the other—you know, I just want 

to make sure that—let me just ask: Is anything being done to consolidate the amount of regulators and the different regulators that 

go into banks today that is causing some of the problems? Is there 

anything under way right now to consolidate these regulators? 

Mr. KROSZNER. Well, that would be something that Congress 

would have to do. Congress has given the authorities to different 

regulators to regulate different aspects of a different institution or 

regulate different institutions. And so that would have to be a 

change that Congress would make if there is going to be a change 

in the regulatory structure. 

Mr. WESTMORELAND. Okay. And, Madam Chair, I would love to 

look into that, to see if we can’t do something to that. 

And so, but we are looking at mark to market? 

Mr. KROSZNER. I believe that there is a study that the legislation 

required the Securities and Exchange Commission to do. And, as 

I said, we are providing whatever technical support we can to help 

them to have the data to be able to get to the right answer. 

Mr. WESTMORELAND. You know, when I was in business, a smallbusiness guy, you would call somebody and the only answer they 

would give you is, ′′Let me check on that for you,′′ we called them 

′′the checkers.′′ I feel like I am dealing with ′′the studiers′′ today, 

29 

in that everything that we ask either one of you, you are studying 

it. 

We need to get some advanced studies here and get these things 

out as soon as possible, because studying this situation is causing 

a lot of people a lot of grief. And so I hope that you can study these 

things as fast as you can to get some immediate help to small business, which is the backbone, as you may know, to our economy. 

Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Ranking Member, you don’t have any more questions? 

Well, let me take this opportunity again to thank you all. And 

I hope that you understand we are not here questioning your commitment, but, at least on my end, I am here questioning your priorities. I hope that we are going to hear from you soon—the SBA 

loan facility, to unfreeze the SBA secondary market that you mentioned before. And as soon as we come back, we will be reaching 

out to you, or you will be reaching out to us, to see that something 

has been done. 

And, with that, I ask unanimous consent—I hope that you get 

the message here, gentlemen. We are not pleased with your actions. And we need to have actions taken targeting small businesses, small banks, and that you work as fast and quick as you 

did with the 10 largest banks in our Nation. 

Small community banks, independent banks, they must play a 

role in stabilizing the markets. And they are the ones in our communities that are lending to small businesses, who, at the end, are 

the ones creating the jobs that will get this economy growing 

again—not the largest bank, not the big corporation, those small 

institutions in our community. 

With that, I ask unanimous consent that members will have 5 

days to submit a statement and supporting materials for the 

record. Without objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 12:12 p.m., the committee was adjourned.] 

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