WASHINGTON (MNI) – Following is the text of a statement issued
Tuesday by the Federal Reserve:
The Federal Reserve Board on Tuesday announced that it had agreed
with the Treasury Department that it was appropriate for Treasury to
reduce from $20 billion to $4.3 billion the credit protection provided
for the Term Asset-Backed Securities Loan Facility (TALF) under the
Troubled Asset Relief Program (TARP). The Board had authorized up to
$200 billion in TALF loans, but when the program closed on June 30,
2010, there were $43 billion in loans outstanding.
Under the TALF, which began operation in March 2009, the Federal
Reserve Bank of New York extended loans to investors in highly rated
asset-backed securities (ABS) and commercial mortgage-backed securities
(CMBS). By encouraging issuance of ABS and CMBS, the TALF was designed
to increase credit availability and support economic activity. Although
the TALF extended $70 billion in loans, many TALF loans, which have
initial maturities of three or five years, have been repaid early, in
part because the interest rates on TALF loans were designed to be higher
than market rates in the more normal conditions that have come to
prevail in a number of securitization markets.
Any losses on the TALF program would first be absorbed by the
accumulated excess of the TALF loan interest payments over the Federal
Reserves cost of funds and then by the TARP funds. To date, the TALF
program has experienced no losses and all outstanding TALF loans are
well collateralized. The Board continues to see it as highly likely that
the accumulated excess interest spread will cover any loan losses that
may occur without recourse to the dedicated TARP funds.
** Market News International Washington Bureau: 202-371-2121 **
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