Financial Reform Watch

Some surprises were included in today's announcement by the Federal Reserve and the Treasury on new developments with the soon-to-be $1 trillion Term Asset-Backed Securities Loan Facility (TALF). Of particular note is the statement that the two agencies will push for legislation to re-tool the program.

According to the joint release, the TALF is “designed to catalyze the securitization markets by providing financing to investors to support the purchase of certain AAA-rated asset-backed securities” and will at first be limited to newly and recently originated auto, credit card, student, and SBA-guaranteed small business loans. The TALF funds will go out monthly starting in March, and they are already anticipating a program expansion for April that will include “asset backed securities (ABS) backed by rental, commercial, and government vehicle fleet leases and ABS backed by small ticket equipment, heavy equipment, and agricultural equipment.” The Treasury and the Fed are also analyzing how to expand the program in future months to include commercial mortgage backed securities and other AAA-rated, newly issued ABS.

On the legislative front, the agencies' purpose is "to give the Federal Reserve the additional tools it will need to enable it to manage the level of reserves while providing the funding necessary for TALF and for other key credit-easing programs.” The markets could react either way to the news that the Fed and Treasury want legislation. Some may view this as a path to a new, better strategy for resolving the crisis. Others may see it as an act of desperation because nothing else seems to be working. Either way, today’s announcement opens the door for Congress to play an even greater role in charting the course back to financial stability.

Treasury:  White Paper on the Consumer and Business Lending Initiative (PDF)

Federal Reserve: Certification as to TALF Eligibility (PDF)

Federal Reserve: TALF FAQs (PDF)

Federal Reserve: TALF Terms and Conditions  (PDF)