June 28, 2012

Federal Reserve Board and Treasury Department agree that Term Asset-Backed Securities Loan Facility (TALF) requires less credit protection as it winds down

For immediate release

The Federal Reserve Board on Thursday announced that it agreed with the Treasury Department that it was appropriate to reduce from $4.3 billion to $1.4 billion the credit protection Treasury is providing for the Term Asset-Backed Securities Loan Facility (TALF).

During the financial crisis, after asset-backed securities markets seized up, the Federal Reserve Bank of New York lent $71 billion under the TALF to investors in highly rated asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). By encouraging issuance of ABS and CMBS, the TALF supported the economy by increasing credit availability to American households and businesses. Most TALF loans have been repaid or matured. As of June 20, 2012, TALF loans outstanding totaled $5.3 billion.

TALF, which began operating in March 2009, was originally authorized to lend up to $200 billion, with the Treasury's Troubled Asset Relief Program (TARP) providing $20 billion in credit protection. When the program closed on June 30, 2010, $43 billion in loans, with initial maturities of three or five years, were outstanding and the Board agreed at that time to a reduction in TARP credit protection to $4.3 billion. Borrowers have continued to repay their loans early at a rapid pace, in part because interest rates on TALF loans were designed to be higher than market rates in more-normal conditions. Additionally, some three-year TALF loans have matured.

TALF supported the origination of nearly 3 million auto loans, more than 1 million student loans, nearly 900,000 loans to small businesses, 150,000 other business loans, and millions of credit card loans. To date, the program has experienced no losses and the Board continues to see it as highly unlikely that recourse to TARP funds will be necessary.

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Last Update: June 28, 2012