TALF LOAN - Term Asset-Backed Securities Loan Facility

Term Asset-Backed Securities Loan Facility

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The Term Asset-Backed Securities Loan Facility (TALF) is the name of a program created by the U.S. Federal Reserve (the Fed) to spur consumer credit lending. The program was announced on November 25, 2008 and was to support 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). Under TALF, the Federal Reserve Bank of New York (NY Fed) lent up to $1 trillion (originally planned to be $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. As TALF money did not originate from the U.S. Treasury, the program did not require congressional approval to disburse funds, but an act of Congress forced the Fed to reveal how it spent the money.


Purpose
The Fed explained the reasoning behind the TALF as follows:

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.[1]

For more goto.... http://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_Loan_Facility


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