Term Asset-Backed Securities Loan Facility ("TALF")

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The Term Asset-Backed Securities Loan Facility (TALF) was created in early 2009 to kick-start the markets in asset-backed securities offering non-recourse loans to investors holding new asset-backed securities, generally student loans, auto loans, floorplan loans, credit card loans, insurance premium loans, Small Business Administration loans. It was then expanded to include legacy (“toxic”) and new commercial mortgage-backed securities. In theory, this would encourage consumer and commercial lending in these areas by creating a market for those loans to be repackaged as ABS and sold to investors. The loans are made by the Federal Reserve Bank of New York, with funds from the Treasury to service the liquidation of assets seized by the Fed should a borrower default on or walk way from their loan (though this has yet to occur). The program was initially funded by $200 billion in lending from the Federal Reserve with $20 billion reserved from the Treasury for liquidation, but the Fed has said the program is expandable to $1 trillion and up to $80 billion in Treasury funding. Treasury also announced that they are upping the current commitment to $30 billion should the Fed need it. The program has been expanded and lengthened, but is currently set to expire by June 2010.

At the conclusion of the lending period in June 2010, the last TALF purchase was made in March 2010.[1]

Wall Street Bailout Accounting
(back to main table)
TERM ASSET-BACKED SECURITIES LOAN FACILITY
Balance Sheet
Disbursed*: FRBNY: $67.0B[2]

Treasury: $100M[3]

Current outstanding: FRBNY: $12.9B[4]

Treasury: $100M[5]

Public Funds
Maximum at-risk: FRBNY: $1T ($200B initially authorized, $1T cited as upper limit.)[6]

Treasury: $80B[7]

Current at-risk: FRBNY: $32.8B[8]

Treasury: $4.3B[9]

* See the methodology and glossary for definitions of "disbursed," etc.

Funding agency and aid type

The funding agency was the Treasury Department.

Loans to holders of legacy CMBS and new commercial and consumer lending ABS.

The New York Federal Reserve stopped purchasing asset-backed securities under TALF on June 30, 2010. On July 20, 2010, the NY Fed announced that it had reached an agreement with Treasury to reduce the credit protection offered by Treasury under TARP from $20 billion to $4.3 billion. The NY Fed said that no losses had occurred thus far and that it anticipated that interest payments it earned under TALF would cover any future losses.[10]

Who benefits

Directly: Holders of legacy CMBS and packagers of new ABS.

Notes

The loans are generally made for three-year terms, but certain CMBS loans were given five year terms.[11]

TALF has helped reduced the cost of commercial borrowing.[12]

The Fed announced on May 1, 2009 that newly issued AAA-rated CMBS would be eligible for TALF financing and expanded it to legacy AAA-rated CMBS (toxic assets) on May 19, 2009.[13] The Fed announced in August 2009 that the cut-off for loans for newly issued ABS and legacy CMBS loans would be extended from December 31, 2009 to March 31, 2009. The cut-off for newly issued CMBS would be extended from December 31, 2009 to June 30, 2010. The range of types of assets eligible for TALF loans, however, would not be expanded.[14] In July 41 members of the House, including Barney Frank, signed a letter to Ben Bernanke requesting an extension.[15]

Articles and resources

Related SourceWatch articles

References

  1. "Term Asset-Backed Securities Loan Facility: Announcements", Federal Reserve Bank of New York.
  2. Federal Reserve Bank of New York, “Term Asset-Backed Securities Loan Facility: Announcements”, Nov. 25, 2008 to July 14, 2010.
  3. Office of Financial Stability, Agency Financial Report, FY 2009, p. 100, available at http://www.ustreas.gov/press/releases/OSF%20AFR%2009.pdf, accessed Mar. 15, 2010. “The OFS disbursed $100.0 million upon creation of the TALF, LLC and the remainder can be drawn to purchase collateral in the event the spread is not sufficient to cover purchases.”
  4. Net portfolio holdings of Term Asset-Backed Securities Loan Facility (available via Federal Reserve Bank of St. Louis, http://www.research.stlouisfed.org/fred2/series/WTALF, accessed July 6, 2011)
  5. Office of Financial Stability, p. 100, available at http://www.ustreas.gov/press/releases/OSF%20AFR%2009.pdf, accessed Mar. 15, 2010. “The OFS disbursed $100.0 million upon creation of the TALF, LLC and the remainder can be drawn to purchase collateral in the event the spread is not sufficient to cover purchases.”
  6. Federal Reserve Board of Governors News Release. “Federal Reserve is prepared to expand Term Asset-Backed Securities Loan Facility (TALF)”, February 10, 2009.
  7. Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress, October 21, 2009”, p. 72.
  8. Net portfolio holdings of Term Asset-Backed Securities Loan Facility (available via Federal Reserve Bank of St. Louis, http://www.research.stlouisfed.org/fred2/series/WTALF, accessed Sept. 20, 2010)
  9. Original exposure (Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress January 30, 2010”, p. 76.) and current exposure ("Federal Reserve announces agreement with Treasury regarding reduction of credit protection provided for TALF" (press release), July 20, 2010.)
  10. "Federal Reserve announces agreement with Treasury regarding reduction of credit protection provided for TALF" (press release), July 20, 2010.
  11. Federal Reserve press release, May 1, 2009: http://www.federalreserve.gov/newsevents/press/monetary/20090501a.htm
  12. Scott Lanman, “Fed Extends TALF Program for Commercial Real Estate,” Bloomberg, Aug. 17, 2009.
  13. Federal Reserve press release May 19, 2009: http://www.federalreserve.gov/newsevents/press/monetary/20090519b.htm
  14. Federal Reserve press release August 17, 2009: http://www.federalreserve.gov/newsevents/press/monetary/20090817a.htm
  15. Scott Lanman, “Fed Extends TALF Program for Commercial Real Estate”, Bloomberg, Aug. 17, 2009.

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