About the Term Asset-Backed Securities Loan Facility (TALF)
May 22, 2009
UPDTAED MAY 22, 2009
About TALF
The Federal Reserve Board on November 25, 2008 announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a facility that will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).
The Board authorized the TALF on November 24, 2008 under section 13(3) of the Federal Reserve Act. (Section text provided below) The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business asset-backed securities (ABS). The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans, but conditions in ABS markets have caused issuance of such securities to come to a standstill in recent months.
Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The FRBNY will lend an amount equal to the market value of the ABS less a haircut and will be secured at all times by the ABS. The U.S. Treasury Department–under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008–will provide $20 billion of credit protection to the FRBNY in connection with the TALF. The attached terms and conditions document describes the basic terms and operational details of the facility. The terms and conditions are subject to change based on discussions with market participants in the coming weeks.
New issuance of ABS declined precipitously in September and came to a halt in October. At the same time, interest rate spreads on AAA-rated tranches of ABS soared to levels well outside the range of historical experience, reflecting unusually high risk premiums. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads.
TALF Terms and conditions (44 KB PDF)
Section 13(3) of the Federal Reserve Act (enabling legislation)
3. Discounts for Individuals, Partnerships, and Corporations
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.
Federal Reserve TALF Chronological Info
(click on the date to get the story)
May 19, 2009 Federal Reserve announces that certain high-quality commercial mortgage-backed securities will become eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF)
May 1, 2009 Federal Reserve announces expansion of eligible collateral under Term Asset-Backed Securities Loan Facility (TALF)
April 21, 2009 Federal Reserve announces two new interest rates applicable to loans extended under Term Asset-Backed Securities Loan Facility (TALF)
March 19, 2009 Board announces that the set of eligible collateral for loans extended by the Term Asset-Backed Loan Facility (TALF) is being expanded to include four additional categories of asset-backed securities
March 3, 2009 Treasury and Federal Reserve announce launch of Term Asset-Backed Securities Loan Facility (TALF)
February 10, 2009 Federal Reserve is prepared to expand Term Asset-Backed Securities Loan Facility (TALF)
December 19, 2008 Federal Reserve releases revised information detailing operational aspects of Term Asset-Backed Securities Loan Facility (TALF)
Frequently asked questions about TALF (updated May 19, 2009)-click on a topic
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