Study: Bank Bailout Didn’t Boost Small Business Lending


A new study by the Small Business Administration found that the money the banks got from the government in the wake of the financial crisis didn’t encourage small business lending. In fact, it may have done just the opposite.

The study, which was done by Rebel Cole, a professor at DePaul University, looked at banks that got money from the government in 2008 and 2009 through the Troubled Asset Relief Program, and banks that did not. What Cole found is that the banks that got TARP not only didn’t use the money to boost lending, they actually cut their lending, at least when it came to small businesses, and that drop was larger than at banks that didn’t get TARP.

This is of course distressing for the SBA and small businesses in general. But alone it isn’t really a sign that the bailouts didn’t work. Nor is it all that surprising. Nonetheless, the study does bring up a good point.

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The bit that the bank bailout was going to boost lending to small businesses or anyone else was always a bit of a misdirect and cover for TARP, which law makers knew was going to be unpopular for what it was, which was a large bailout of Wall Street. We know how to encourage lending. The government has to guarantee loans. That’s how it works in the housing market. And, indeed, in the small business market. At no other time does the government hand over money to banks to boost lending. So it’s not surprising that you can debunk this.

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