At one time, Congress was considering having the federal government set up a “lending fund” for small banks. The U.S. Treasury would lend the funds to banks. The more of the funds the banks loaned to small businesses, the lower the interest rate the Treasury would charge the banks on the loans. A member of Congress was asked to comment on whether the bill would be helpful to small businesses. Here is part of the member’s response:

The bank that’s struggling to write down their commercial real estate assets is having to take a hit to capital, and this provides replacement capital on very, very favorable terms. So it deals with the left side of the balance sheet.
a. Would a loan from the Treasury be counted as part of a bank’s capital?
b. Does a bank’s capital appear on the left side of the bank’s balance sheet?