Banking: US Treasury takes stake in small bank
The US Treasury has taken a chunk of "preferred stock" in small New Hampshire bank Centrix in return for USD24.5 million.
The money is not a bailout: it is earmarked as, in effect, pass-through funds to lend to small businesses.
The investment is made under the Small Business Lending Fund (SBLF) which was created by the Small Business Jobs Act, 2010. The SBLF is a USD30,000 million fund created to encourage lending to small businesses by "providing capital to qualified community banks with less thanUSD10,000 million in assets."
Joseph B. Reilly, President/CEO of Centrix says "This new source of capital will enable us to continue to serve the small business community through our growing portfolio of commercial lending products and services." Then came the PR puff for the Treasury: he went on "Centrix is a prime example of how providing healthy community banks with capital should result in continued lending to support the small business community, which is central to creating jobs and restoring economic prosperity for our nation."
He's probably right: TARP was a disaster from the point of view of trickling money to the small businesses which are the engine room of any economy and much of the TARP money simply recycled around the big banks and their corporate clients.
But not all the USD24.5 million going to Centrix is new money: the SBLF investment will qualify as Tier 1 capital for regulatory purposes. After giving effect to Centrix Bank's planned redemption of USD7.5 million of Centrix Bank Preferred Stock previously purchased by the U.S. Treasury Department under an earlier scheme known as the Capital Purchase Program (CPP), the SBLF investment will increase Centrix Bank's Tier 1 capital by USD17.0 million.
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