Nov. 18 (Bloomberg) -- Treasury Secretary Timothy Geithner urged U.S. banks to boost lending to small businesses and consumers who still face “very challenging” credit conditions and rising unemployment.

“Banks bear some responsibility for the extent of the damage caused by the crisis,” Geithner said today at a small- business conference in Washington. “You carry a substantial obligation to help our communities get back on their feet.”

Bank of America Corp.’s total loan originations in September fell 6 percent to $53.6 billon from a month earlier and Wells Fargo & Co.’s new lending dropped 14 percent to $47.4 billion, a Treasury Department report two days ago showed. The monthly surveys show lending patterns by the biggest banks receiving government funds from the $700 billion Troubled Asset Relief Program.

As the Obama administration moves from “rescue” policies to what Geithner called the “repairing and rebuilding” phase, joblessness last month reached a 26-year high of 10.2 percent. The Treasury chief today said the administration is committed to doing more to help small businesses get credit needed to “grow and hire new workers.”

Goldman Sachs Group Inc. announced plans yesterday to join Warren Buffett to provide assistance to 10,000 small businesses in the U.S. The $500 million charitable effort aims to provide help ranging from counseling to obtaining funding. Buffett’s Berkshire Hathaway Inc. is the largest shareholder in New York- based Goldman Sachs.

Slower Growth

“Without increased access to credit for American families and small businesses, growth will be weaker, companies will defer long-term investments and we will not be able to create a recovery that is self-sustaining and led by private demand,” Geithner said.

Total loan originations from the largest TARP aid recipients increased 2 percent in September from a month earlier as lending by Citigroup Inc. grew 4 percent to $15.3 billion and JPMorgan Chase & Co.’s rose 16 percent to $50.6 billion, the report showed.

The S&P 500 Financials Index has soared about 140 percent since the broader Standard & Poor’s 500 Index reached a 12-year low on March 9.

Under the TARP’s capital purchase program, the Treasury injected about $205 billion into banks of all sizes as of Nov. 13, according to figures released by Geithner’s department yesterday. About $71 billion of that has been repaid.

TARP Repayments

Geithner said banks are repaying the program at a “very rapid rate” and said the government’s costs to stabilize the financial system have come down “quite significantly.”

The savings from TARP will help the Treasury reduce the budget deficit, he said. The Congressional Budget Office in August predicted a shortfall of $1.4 trillion in the fiscal year that started Oct. 1.

So far, banks have been “reluctant” to take advantage of TARP programs intended to boost small-business lending, Geithner said. That’s because of perceptions of a stigma from taking TARP money, as well as banks’ concern that TARP rules could change in potentially detrimental ways.

Large businesses get 30 percent of their financing from banks, while small businesses rely on banks for 90 percent for their credit, Geithner said.

“So when banks pull back, small businesses take the hardest hit,” he said.

Home Building

Earlier today a Commerce Department report showed builders in October broke ground on fewer U.S. houses. The 11 percent plunge in starts to an annual rate of 529,000, the lowest level since April’s record low, followed a 592,000 pace the prior month, the department said.

At the end of today’s conference, Geithner said “this credit crisis is not over” for many of the nation’s small firms. While there has been a “substantial” return to stabilization in financial markets, a full recovery led by private investment will take a “sustained” effort by the government, he said.

Bankers are paying more attention to small businesses, said Stephen Steinour, chief executive officer of Huntington Bancshares Inc., a Columbus, Ohio-based bank holding company.

“This is a focus now on small businesses that the administration’s driving,” Steinour said in an interview after the event. He said the government needs to make more funds available to help small businesses raise working capital, without the complexity and stigma attached to some of the TARP- based initiatives.

FDIC’s View

Federal Deposit Insurance Corp. Chairman Sheila Bair, speaking at the conference today alongside Geithner, said regulators won’t penalize banks for helping borrowers cope with the real estate slump.

“As we emerge from this recession, the new loan workout guidance will be seen as a particularly useful tool in helping to minimize the fallout of falling property values on bank borrowers,” Bair said.

The FDIC expects “credit losses will continue to hold down industry earnings” in the third quarter, she said.

To contact the reporters on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net

Last Updated: November 18, 2009 15:57 EST