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Many small community banks are growing frustrated about their inability to access the government's $700 billion financial rescue fund, nearly two months after large banks began tapping the fund for much-needed capital.

Trade groups representing the banks complain that the delay is putting smaller institutions at a competitive disadvantage to publicly traded banks, more than 50 of which have received capital injections.

"They took care of Wall Street first, and it seems like Main Street got left behind," said Cynthia Blankenship, vice chairwoman of Bank of the West in Irving, Texas, which has $250 million in assets. Blankenship is also chairwoman of the Independent Community Bankers of America.

Some small banks, especially in areas such as California and Florida where the housing slump hit hardest, carry troubled real estate loans and likely would benefit from the government cash, Blankenship said.

Publicly traded banks have been eligible since the Treasury Department began the $250 billion capital injection program Oct. 14. The department opened it on Nov. 17 to about 3,800 small, privately held banks. A few publicly traded community banks already have received government money.

But the department has yet to issue the necessary guidelines for about 3,000 additional private banks. Most of them are set up as partnerships, with no more than 100 shareholders. They aren't able to issue preferred shares to the government in exchange for capital injections, as other banks can.

The Treasury Department has come under fire from members of Congress for not ensuring that the capital injections lead to more lending. The ICBA also argues that healthy smaller banks are more likely to use government money to make loans than are big banks that need to shore up their capital after writing down billions in mortgage-related losses.

Hundreds of the banks have applied for government money, the ICBA said in a letter Tuesday, as a precautionary step. But they can't access the money.

As a result, the government needs to figure out what it can receive in exchange for capital. Treasury officials say they are working on it but that the task is technically difficult.

"I have not seen a good answer yet," Neel Kashkari, director of Treasury's Office of Financial Stability, said Monday at a housing conference.

The vast majority of small banks are financially healthy, the ICBA says. Most did not get caught up in the housing meltdown that has so damaged Wall Street banks. But groups such as the ICBA say the rescue fund is supposed to be available to all healthy banks.

Banks that aren't eligible may lose out to other lenders that have received government money, the American Bankers Association added in a letter Dec. 5 to Treasury Secretary Henry Paulson.

"They can only watch while many of their competitors, strengthened by capital injections from the government, seize opportunities to meet credit needs of their communities," the ABA letter said.

Rep. Paul Kanjorski, a Pennsylvania Democrat, urged Treasury Secretary Henry Paulson in a letter Dec. 5 to open the program to the remaining small banks by the end of December.

Bert Ely, a banking consultant, said one possible solution would be for the government to receive some type of debt instrument rather than equity.

The Treasury Department is still struggling to hire enough staff to operate the capital-injection program, the Government Accountability Office, an auditing agency, said in a report earlier this month.

The department has handed out more than $155 billion to 77 banks. Of that sum, $115 billion has gone to the eight largest, including Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co.

Some smaller banks that haven't yet been able to access the federal money are particularly irked by the efforts of nonbank financial institutions, such as life insurers and credit card companies, to get a slice of the money. At least four life insurers, including Hartford Financial Services Group Inc. and Genworth Financial Inc., are seeking to buy small thrifts to become eligible for the capital injections.

"The law was passed to help banks, and now companies are trying to get in front by becoming a bank," said Paul Merski, chief economist for the ICBA, which has about 5,000 members. "It's a little bit frustrating."

The banks that aren't eligible control just a small slice of the nation's banking assets. They make up about one-third of community banks, which the Federal Deposit Insurance Corp. defines as banks with less than $1 billion in assets.

Overall, community banks hold 11 percent of the industry's total assets, according to Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. Still, they play a vital role in small business and agriculture lending.

Community banks provide 29 percent of small commercial and industrial loans, 40 percent of small commercial real estate loans and 77 percent of small agricultural production loans, Bair said in congressional testimony last month. The FDIC doesn't have more precise data for the type of banks that aren't eligible for capital injections.

The delay in accessing the rescue money is just one aspect of the program that has frustrated small community banks and their directors.

The government has said the $250 billion it set aside for capital injections is intended for healthy banks. Yet the money has been widely referred to in press reports as a "bailout." As a result, many well-capitalized banks worry that if they take money from Treasury, their customers might see them as weak, Blankenship said.

Conversely, if they don't receive any funds, customers might wonder if they were turned down, she said. Treasury lists banks that have received money. But it won't say which banks have applied.

Finally, the ICBA has raised concerns about a measure governing the capital injections that would let the Treasury Department "unilaterally amend" the program. For example, Congress could require banks that have received government money to do more lending, Merski said.

"That's a bit concerning," said Dan Blanton, chief executive of Georgia Bank & Trust, based in Augusta, Ga. "If they decide they want to change the rules after you've taken the money ... you have to live with it."

Still, Blanton said his bank has applied for federal funds, though he hasn't decided yet whether to take the money if his bank is approved.

Federal agencies and trade groups have encouraged banks of all kinds -- including those not yet technically eligible -- to apply for the capital, to preserve the option. More than 1,000 community financial institutions have applied, Bair said in her testimony last month.

But some small banks that are eligible are saying no. Financial services firm Keefe, Bruyette & Woods said in a recent report that at least 82 banks have publicly said they won't seek funds.

Evergreen Federal Bank, based in Grants Pass, Ore., for example, has a link on its home page that reads, "We Don't Need a Bailout."