President Obama, looking to boost lending to small business, will start using some of the leftover federal bailout funds to shore up smaller community banks and induce them to offer credit to firms he called the “backbone of the American economy.”

Smaller financial institutions are in greater need of capital to grow and expand, whereas the country’s large banks have moved past their need for what’s left of the $700-billion Troubled Asset Relief Program, Obama said Thursday at a family-owned storage business in suburban Washington.

“The major banks that were in critical condition a year ago need no new assistance from the government,” Obama said, “and so we are winding down that portion of the TARP program.”

Less than $140 billion is left from the bailout that Congress approved a year ago. The Treasury will decide how much of that should go to smaller financial institutions by the end of the year after conferring with community bankers nationwide.

(more…)