New US bank plan offers lending incentive -Treasury Secretary

"We're trying to create strong positive incentives to lend in support of growing businesses," Geithner told reporters in a conference call. "The more loans these banks make to these business customers, the better deal they are going to get."

The program, which proposes carving out $30 billion from repaid bank bailout funds, aims to provide new incentives for small business loans and eliminate the stigma and restrictions that caused many smaller banks to shun the Troubled Asset Relief Program, known as TARP.

Under the plan, which requires approval by Congress, banks would pay a 5 percent dividend on the government capital they receive from the proposed Small Business Lending Fund -- the same as the initial TARP rate -- and this would decline to as low 1 percent as funds are loaned out.

They would receive a one-percentage-point decrease in their dividend rate for every 2.5 percent increase in incremental business lending demonstrated over a two-year period.

Banks could receive funds equivalent to 3 percent to 5 percent of their risk-weighted assets under the programs, depending on their size.

The program also would allow banks with less than $10 billion in assets that currently have TARP funds to convert that capital to the new program. This would immediately lower their funding costs on loans already made with TARP money, assuming they have increased lending above a certain baseline.