Federal Reserve Announces Term Asset-Backed Securities Loan Facility to Spur Lending

Also on November 25, 2008, the Federal Reserve Board announced the creation of the Term Asset-Backed Securities Loan Facility (TALF), a facility under which the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion to support the issuance of AAA-rated asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration (SBA). The U.S. Treasury Department is providing $20 billion of credit protection to the FRBNY in connection with the TALF pursuant to its authority under the Troubled Assets Relief Program of the Emergency Economic Stabilization Act of 2008. TALF loans will have a one-year term and will be non-recourse to the borrower and fully secured by eligible ABS. The FRBNY will cease making new loans under the facility on December 31, 2009, unless the Federal Reserve Board agrees to extend the facility. In a press release detailing the new loan facility, the Federal Reserve Board stated that the markets for asset-backed securities “historically have funded a substantial share of consumer credit and SBA-guaranteed small-business loans.” The facility is designed to generate increased credit availability and to support economic activity by facilitating renewed issuance of consumer and small-business asset-backed securities at what the Federal Reserve Board called “more normal interest-rate spreads.”

For TALF terms and conditions – including executive compensation requirements. Note that the terms and conditions are subject to change based on the Federal Reserve’s discussions with market participants in the coming weeks.

http://www.federalreserve.gov/newsevents/press/monetary/monetary20081125a1.pdf

For copies of the Federal Reserve Board and the U.S. Treasury Department press releases.

http://www.federalreserve.gov/newsevents/press/monetary/20081125a.htm

http://www.treas.gov/press/releases/hp1292.htm