Fed Proposes Changes To TALF Collateral Assessments

The Federal Reserve Board has proposed two changes to the procedures for evaluating asset-backed securities (ABS) pledged to the Term Asset-Backed Securities Loan Facility (TALF).

The board has proposed a rule that would establish criteria for the Federal Reserve Bank of New York to determine the Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings are accepted for determining the eligibility of ABS to be pledged as collateral at the TALF.

The proposed rule, which would require a certain minimum level of experience in rating deals of any particular type, would likely result in an expansion of TALF-eligible NRSROs for ABS, the Fed says. The move has the dual intentions of promoting competition among NRSROs and ensuring protection against credit risk for the U.S. taxpayer.

Second, starting with the November subscription, in addition to continuing to require that collateral for TALF loans receive two AAA ratings from TALF-eligible NRSROs, the Federal Reserve Bank of New York will conduct a formal risk assessment of all proposed collateral – ABS, in addition to commercial mortgage-backed securities, which are already subject to a formal risk assessment.

To facilitate the risk assessment, each issuer wishing to bring a TALF-eligible ABS transaction to market will be required to provide, at least three weeks prior to the subscription date, information including, but not limited to, all data on the transaction the issuer has provided to any NRSRO, the Fed says.

SOURCE: Federal Reserve


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