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Gov. Launches Securities Loan Facility

As part of the administration's Financial Stability Plan, on Tuesday, the ""Department of the Treasury"":http://www.treasury.gov and the ""Federal Reserve Board"":http://www.federalreserve.gov announced the launch of the ""Term Asset-Backed Securities Loan Facility"":http://www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf (TALF). According to government officials, TALF has the potential to generate up to $1 trillion in lending.
The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities (ABS). These markets have historically been a critical component of lending for the U.S. financial system, but they have been virtually shuttered since the worsening of the financial crisis in October. By reopening these markets, the government says TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy.
Under the new facility, the ""Federal Reserve Bank of New York"":http://www.newyorkfed.org will lend up to $200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. Issuers and investors in the private sector are being asked to begin arranging and marketing new securitizations of recently generated loans, and submit their requests for funding on March 17th. On March 25th, new securitizations will be funded by the program, creating new lending capacity for future loans. The program will hold monthly fundings through December 2009, but this sunset date can be extended by the Federal Reserve Board if economic conditions necessitate.
The Treasury and Fed said that teams within their organizations are already analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS), and are also considering private-label residential mortgage-backed securities (RMBS), collateralized loan and debt obligations, and ABS backed by mortgage-servicer advances for possible acceptance under the expanded program.
In a press statement, the agencies said, ""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.""
As is the case for the current categories of newly originated loans, officials said, TALF will combine public financing with private capital to encourage the private securitization of loans in the asset classes made eligible under the expanded program.
The Treasury and Fed noted that increased TALF lending and other actions to stabilize the financial system have the potential to greatly expand the Federal Reserve’s balance sheet. The two organizations said they plan to pursue legislation to give the Federal Reserve the additional tools it will need to effectively manage its balance sheet and reserves, while still providing the funding necessary for TALF and other key credit-easing programs.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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