|Fed Announces Details on TALF, AIG Restructuring
Recent Federal Reserve actions taken to improve the functioning of financial markets in March include adding categories of asset-backed
securities that are eligible for loans extended by the Term Asset-Back Securities Loan Facility (TALF) and more information about the
participation by the U.S. Treasury and the Federal Reserve Board in the restructuring of AIG.
Eligible assets for TALF broadened
On March 19, the Federal Reserve Board announced that collateral eligible for TALF funding includes asset-backed securities (ABS) backed by mortgage
servicing advances, loans or leases relating to business equipment, leases of vehicle fleets, or floor plan loans.
Mortgage servicing advances are loans extended by residential mortgage servicers to cover payments missed by homeowners. Accepting ABS backed by
mortgage servicing advances should improve the servicers' ability to work with homeowners to prevent avoidable foreclosures.
Treasury Department, Federal Reserve coordinate AIG efforts
In early March, the U.S. Treasury and the Federal Reserve issued a joint statement to clarify their participation in the plan to restructure AIG,
the struggling insurance company. The statement specified that the government's restructuring of the company is intended to enhance the company's
capital and liquidity to facilitate the orderly completion of the company's global divestiture program.
Key steps of the plan include preferred shares in the firm for the U.S. Treasury, a $30 billion capital source that AIG can draw on in exchange for
preferred stock to the Treasury, and the establishment by the New York Fed of a $60 billion revolving credit facility for AIG.
Treasury and the Fed jointly emphasized that AIG will be required to comply with executive compensation and corporate governance requirements of the
Emergency Economic Stabilization Act.