Federal Reserve Board Announces Agreement with Treasury Department Regarding Credit Protection for the Term Asset-Backed Securities Loan Facility (TALF)
The Federal Reserve Board on Tuesday announced that it agreed with the Treasury Department that the credit protection Treasury has provided for the Term Asset-Backed Securities Loan Facility (TALF) is no longer necessary because the accumulated fees collected through TALF exceed the amount of TALF loans outstanding. The TALF remains a joint Treasury-Federal Reserve program, and the Treasury and Federal Reserve will continue to consult on the administration of the program.
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. Nearly all TALF loans have been repaid or matured. As of January 9, 2013, TALF loans outstanding totaled $556 million. Accumulated fees collected through TALF totaled $743 million through January 9, 2013.
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. By June 20, 2012, loans outstanding totaled $5.3 billion and the Board then agreed to a reduction in TARP credit protection to $1.4 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, most three-year TALF loans have matured. All remaining loans are well collateralized and current in payments of interest and principal.
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.
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