Fed Looks To Unfreeze Credit With Term ABS Loan Facility

On the same day as its announcement of a $600 billion program to buy the direct obligations and mortgage-backed securities of the housing-related government-sponsored enterprises, the Federal Reserve Board said it would create 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.

The facility, called the Term Asset-Backed Securities Loan Facility (TALF), aims to increase credit availability and support economic activity. Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion on a nonrecourse 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 of the Emergency Economic Stabilization Act of 2008, will provide $20 billion of credit protection to the FRBNY in connection with the TALF.

SOURCE: Federal Reserve


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