Financial Update (First Quarter 2009)

Fed Amends Programs' Rules, Extends Liquidity-Enhancing Measures

photo of Fed Board of Governors images

Recent Federal Reserve actions taken to improve financial markets include additional terms and conditions on the Term Asset-Back Securities Loan Facility (TALF) and the announcement of two final rules pertaining to the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF).

New TALF terms include loan rates and qualifications
The new TALF terms and conditions include a revised definition of eligible borrowers and additional specifications regarding eligible asset-backed security (ABS) collateral. The changes were determined after analysis and consultation with issuers, investors, and dealers in ABS.

Under the TALF, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain types of auto loans, credit card loans, student loans, and small business loans guaranteed by the Small Business Administration.

FAQ about the TALF program off-site image
Press release about the AMLF rules off-site image
Information about liquidity programs' extension off-site image

New rules for AMLF facilitate banks' participation
The two rules pertaining to the AMLF facilitate participation by depository institutions and bank holding companies as intermediaries between the AMLF and money market mutual funds. The first rule provides a temporary limited exception from the Federal Reserve Board's leverage and risk-based capital rules for bank holding companies and state member banks.

The second rule provides a temporary limited exception from sections 23A and 23B of the Federal Reserve Act, which establish certain restrictions on and requirements for transactions between a bank and its affiliates.

Liquidity programs receive extension
The Federal Reserve has also announced the extension through Oct. 30, 2009, of its existing liquidity programs that were scheduled to expire on April 30, 2009.

The Board of Governors approved the extension through Oct. 30 of the AMLF, the Commercial Paper Funding Facility, the Money Market Investor Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility, which is established under the joint authority of the Board and the Federal Open Market Committee.

In addition, to address continued pressures in global U.S. dollar funding markets, the temporary reciprocal currency arrangements (swap lines) between the Federal Reserve and other central banks have been extended to Oct. 30.

February 26, 2009