On November 25, 2008, the Federal Reserve announced the creation of the TALF under the authority of section 13(3) of the Federal Reserve Act. Under the TALF, the FRBNY extends loans to eligible borrowers to finance the purchase of eligible asset-backed securities (ABS) that serve as the collateral for the loans. The loans provided through the TALF are non-recourse, meaning that the obligation of the borrower can be discharged by surrendering the collateral to the FRBNY. The loans are extended for the market value of the security less an amount known as a haircut. As a result, the borrower bears the initial risk of a decline in the value of the security. TALF LLC has committed, for a fee, to purchase all ABS surrendered to the FRBNY in conjunction with a TALF loan at a price equal to the TALF loan plus accrued but unpaid interest. Purchases of these securities are funded first through the commitment fees received by the LLC and any interest the LLC has earned on its investments. In the event that such funding proves insufficient, the U.S. Treasury�s Troubled Asset Relief Program (TARP) will provide additional subordinated debt funding to the TALF LLC to finance up to $20 billion of asset purchases. Subsequently, the FRBNY will finance any additional purchases of securities by providing senior debt funding to TALF LLC. Thus, the TARP funds provide credit protection to FRBNY.

Because the FRBNY is the primary beneficiary of the LLC the assets and liabilities of TALF LLC are consolidated onto the books of the FRBNY. Although the U.S. Treasury provides credit protection to the FRBNY, the FRBNY is the more closely associated beneficiary of the LLC because it directs the significant financial activities of the TALF LLC. Return