Financial Update (Fourth Quarter 2008)

Federal Reserve Introduces New Liquidity Facility, Extends Others

Federal Reserve Actions Update The Federal Reserve has introduced the Term Asset-Backed Securities Loan Facility (TALF), a tool that will help market participants meet the credit needs of households and small businesses. The TALF supports the issuance of asset-backed securities (ABS) collateralized by students loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration.

Priming the ABS pump
The TALF was created to get the ABS market moving again. New issuance of ABS declined sharply in September, the Federal Reserve Board of Governors said, and came to a halt in October. Historically, ABS markets have funded a large share of consumer credit and 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 Fed said. “The TALF is designed to increase credit availability and support economic activity.”

TALF press releaseoff-site image
TALF terms and conditionsoff-site image
PDCF, AMLF, and TSLF press releaseoff-site image

Extending other facilities
The Fed has also announced the extension of three liquidity facilities: the Primary Dealer Credit Facility (PDCF), the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF), and the Term Securities Lending Facility (TSLF). These facilities had previous been authorized through Jan. 30, 2009. They will now run through April 30, 2009.

The PDCF provides discount window loans to primary dealers. The AMLF provides loans to depository institutions to purchase asset-backed commercial paper from money market mutual funds. Under the TSLF, the New York Fed auctions term loans of U.S. Treasury securities to primary dealers.

December 18, 2008