The Federal Reserve Board agreed with the Treasury Department’s decision to reduce the credit protection provided for the Term Assett-Backed Securities Loan Facility (TALF) under the Troubled Asset Relief Program (TARP) to $4.3 billion from $20 billion , according to a release from the Federal Reserve.
The Fed had previously authorized up to $200 billion in TALF loans, but there were still $43 billion in loans outstanding when the program closed on June 30.
Although $70 billion in loans was extended under TALF, many of these loans had initial maturities of three or five years and have been repaid early. This is partly because the interest rates on TALF loans were higher than market rates in a number of securitization sectors.
Losses on the TALF program would be absorbed by the accumulated excess of the program’s loan interest payments over the Fed’s cost of funds and then by the TARP funds.
So far, TALF has not faced losses and all outstanding loans have been well collateralized. The Federal Reserve Board expects the accumulated excess interest spread to continue to cover any loan losses that occur without recourse to the dedicated TARP funds, the Fed said in the release.
Under TALF, which was launched in March of 2009, the Federal Reserve Bank of New York offered loans to investors in highly rated ABS and CMBS. The program was created to boost credit availability and support economic activity by encouraging issuance of ABS and CMBS.
