Efforts to raise the credit union MBL cap just received a boost in the form of a scathing quarterly TARP report released to Congress.

The Office of the Special Inspector General's report released Wednesday was particularly critical of small and mid-sized banks' ability to lend to small businesses, which comes as Independent Community Bankers of America members hike Capitol Hill this week to lobby against S. 2231.

“To the extent community banks in TARP continue to face a sluggish recovery, non-performing assets, and capital-raising challenges, their lending to consumers – especially to small businesses – will remain constricted,” the SIGTARP report stated.

Banks with assets under $1 billion have steadily lost market share in small business lending since 1995, from 51% to 34%, according to research firm SNL Financial sourced by SIGTARP. However, during that same period, banks with more than $10 billion in assets doubled their small business lending market share.

While large banks have successfully exited the TARP program and returned to “high-risk behavior”, the report said that “after 3½ years, community banks have an uphill battle to exit TARP because they cannot find new capital to replace TARP funds.” 

Additionally, the report said nearly half of all community banks that remain in the TARP program – 163 institutions – are not current in making their dividends and interest payments. Of those, 70 banks have missed six to nine payments as of March 31.

More than 400 banks of all asset sizes remain in the TARP program, and according to the report, the only successful exit program so far has been the Small Business Lending Fund, which “replaced TARP funds with other government funds.”

While SBLF required lending to small businesses in exchange for federal funding, “it ended up being largely a program for culling the strongest banks out of TARP,” the report said.