US Treasury: bank capital measures aid small firms

WASHINGTON, Nov 20 (Reuters) - The U.S. Treasury's plan to inject capital into smaller community banks will aid small businesses that are the backbone of the U.S. economy, a senior Treasury official said on Thursday.

Karthik Ramanathan, acting assistant secretary for financial markets, said in prepared testimony to the House of Representatives Small Business Committee that stabilizing financial institutions and markets will promote increased lending and foster job growth.

The Treasury is accepting applications from small privately held community bans until Dec. 8. The deadline for publicly traded banks expired last Friday.

"Importantly, many of these privately held institutions have strong, long-lasting ties with local businesses," Ramanathan said. "By providing capital to such institutions, Treasury is directly assisting small businesses so that they have the ability to make loans, mitigate funding pressures and promote growth locally."

Democratic lawmakers have been pressuring the Treasury to use more of its $700 billion financial rescue fund to aid struggling homeowners modify their mortgages to make them more affordable and to provide aid to struggling Detroit automakers. But the Treasury wants to reserve the funds for the financial sector.

"Strengthening balance sheets of the financial sector will directly benefit small businesses," Ramanathan said. (Reporting by David Lawder; Editing by Kenneth Barry)