Fed Launches Asset-Backed Securities Loan Facility

The Federal Reserve Board and the Treasury Department on Tuesday jointly announced the launch of the Term Asset-Backed Securities Loan Facility (TALF), through which the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of AAA-rated asset-backed securities backed by new and recently-originated auto loans, credit card loans, student loans and SBA-guaranteed small business loans. The Treasury announced Feb. 10 the program would be expanded to as much as $1 trillion from its original funding range, intended to target small business lending, student loans, consumer and auto finance and commercial mortgages. “The expanded program will remain focused on securities that will have the greatest macroeconomic impact and can most efficiently be added to the TALF at a low and manageable risk to the government,” Fed officials said in a media statement Tuesday. The Fed is scheduled to market the first round of funding to investors through March 17 and distribute the funds on March 25. Disbursement of the second round of funding is scheduled for April 14. The announcement came as the industry contunues to buzz with speculation about a possible bad bank that would take on the toxic assets clogging up credit markets. President Barack Obama is in discussions over possibly setting up multiple investment funds that would buy up bad loans and other distressed assets, unnamed sources told the Wall Street Journal. The initiative may include a private-public financing partnership, with funds led by private investment managers that would control which assets would be bought and at what price, and with government funding provided through the Troubled Asset Relief Program, according to the Wall Street Journal‘s sources. No decision had been made at the time this article went to publication. Write to Diana Golobay at [email protected].