Senator Warner is working with the Treasury Department on a plan to loosen the clogged credit market for small businesses. 

He proposes reallocating some of the funds from the $700 billion Troubled Asset Relief Program (known as TARP) toward programs that specifically will increase lending to small businesses to help them survive -- and, in some cases, even expand -- while we wait for full economic recovery.

He appeared on CNBC this morning to discuss his idea:

Senator Warner told Bloomberg News:

“The original notion of the TARP was, we were going to help Main Street by bailing out Wall Street,” Warner said in an interview. “We’ve seen Wall Street recover, but we have not seen Main Street reap the direct benefits.” ...

Warner said the government needs to go beyond previous initiatives, which target securitized lending and loans guaranteed by the Small Business Administration. Neither of those avenues is likely to encourage small-business lending, he said.

“We’ve seen some programs, not always effective,” Warner said. “I have been concerned. I’d like to see faster action.”

Senator Warner's proposal would combine resources from the Treasury Department, Federal Reserve and community-based banks to create, for instance, a $50 billion pool of money that could be used to lend to small businesses.

In the Washington Post, Senator Warner explains how his proposal would work:

Warner said earlier this month that he fears the programs that Treasury officials are considering to help small businesses might not be "big enough," and that while billions in funds from the Troubled Assets Relief Program have gone to troubled banks that haven't been able to increase their lending, "we've done nothing for small business."

On Wednesday, Warner said he remains open to how such an effort would be funded, but one possible structure would have the Treasury reallocate as much as $10 billion in TARP funds to create a loan pool exclusively for community banks, which could lend the money to small businesses. The Fed would loan $35 billion to the pool, using loans as collateral to create a small-business loan fund. The small banks themselves would contribute $5 billion and agree to absorb some initial losses so that, as Warner said, "they would have skin in the game."

UPDATE: Senator Warner was interview by NPR's "All Things Considered" this weekend to discuss his idea: