Bailed Out Bank Receives Another $6 Million in Federal Funds

A Lake Minnetonka financial institution that still owes the government millions in federal bailout money has received another $6 million from the U.S. Treasury Department. McLeod Bancshares, the parent company of First Minnesota Bank, plans to use the money to pay off and refinance its initial federal Troubled Asset Relief Program (TARP) loan, according to the U.S. Treasury Department.

McLeod Bancshares was among hundreds of banks nationwide that, in 2009, received pieces of a $200 billion federal bailout package intended to stabilize the U.S. financial sector. The new $6 million comes through the Small Business Lending Fund, created as part of the Small Business Jobs Act President Obama signed into law last year.

While U.S. Treasury Department intends—in the very name of the fund—for banks receiving this money to lend it out to small businesses, there's no requirement to do so.

“As banks increase their lending to small businesses, the dividend rate goes down,” Jason Tepperman, the Director of the Small Business Lending Fund, told Patch. “But if a bank doesn’t increase it’s lending to small businesses, the rate goes up—first from 5 percent to 7 percent and then to 9.5 percent after four years.”

The Small Business Lending Fund exists to increase the lending capacity of banks holding less than $10 billion in assets. Banks awarded money must repay the government in full, with interest.

“Because community banks leverage their capital, dollars provided through the Small Business Lending Fund could help increase lending to small business in an amount that is multiples of the total capital provided,” Tepperman said.

The U.S. Treasury received more than 930 applications from financial institutions throughout the nation for Small Business Loan Fund money. To date, about 130 community banks across the country have received more than $1.3 billion in cash under the program.

It’s unclear exactly what McLeod Bancshares, a privately held company, did with its 2009 bailout money, and bank officers weren't immediately available to comment on how money awarded this week will affect its lending practices. Likewise unclear is why the U.S. Treasury selected a bank with TARP debt while rejecting others that submitted applications to receive money through the Small Business Lending Fund. Tepperman would only say that U.S. Treasury and other government agencies carefully vetted the applicants.

"Once we receive an application, we work closely with the federal banking agencies to review each applicant so we can be careful to confirm that the banks receiving funding were those that are well positioned to increase their small business lending and also protect the taxpayers’ investment,” he said. 

McLeod Bancshares isn't a typical brick-and-mortar financial institution. Located on the first floor inside a nondescript office building near the intersections of Highways 41 and 7, in Shorewood, McLeod Bancshares has no website and carries out most of its activity through First Minnesota Bank, which operates 10 branches in Minnesota, including outlets in Minnetonka and Edina.