Obama's $30 billion pledge for "Community Banks"

It was of course great to hear President Obama place a high priority on providing credit to small businesses in Wednesday night's State of the Union speech. Trouble is, no one seems to know what he meant when he mentioned "$30 billion for community banks," to help them make more loans to small businesses. "Community banks" are good, of course, because they are not "big banks," hatred of "big banks" being the only genuine bipartisan consensus which has emerged from the crisis. And community banks, historically, do make loans to small businesses. They are just not doing a lot of it right now. With the interest rates they are paying to their depositors at historic lows, and with the economy still very shaky, they don't need to do much lending to stay afloat and wait out the crisis. And even when they are lending, community banks don't tend to provide credit to very small businesses, which are actually the most reliable job generators. Those businesses, if the proprietor has good personal credit, tend to rely on credit cards (from big banks). If the owner's credit score is not high enough, microbusiness owners may not have access to credit, unless they are lucky enough to have a microlender in their area. Ironically, it is the big banks, not community banks, who tend to be the main private investors in CDFI's and microlenders. Bank of America, for instance, has a $1 billion CDFI portfolio. Opportunity Fund is an exception in that we get loan capital from all kinds of banks, big and small.

I don't know what will ultimately come out of the President's $30 billion proposal, but I do hope it includes a way to get more capital to microlenders, and big banks would actually be a more efficient vehicle than community banks.