April 2022

Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility

Ralf R. Meisenzahl and Karen M. Pence


In response to immense strains in the asset-backed securities market in 2008 and 2020, the Federal Reserve and the U.S. Treasury twice launched the Term Asset-Backed Securities Loan Facility (TALF). TALF was an unusual crisis facility because it provided loans to a wide range of nonbank financial institutions. Using detailed loan-level data unexplored by previous researchers, we study the behavior of nonbank borrowers in TALF. We find the extent to which the actions of these borrowers supported key program goals--stabilizing markets quickly, winding down the program when it was no longer needed, providing liquidity to a wide range of assets, and having borrowers internalize credit risk rather than shift it to the government--were related to institutional differences across nonbanks. Since all TALF borrowers faced the same program terms and conditions, our study is able to highlight the role of these institutional constraints.

DOI: https://doi.org/10.17016/FEDS.2022.021

PDF: Full Paper

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Last Update: April 13, 2022