The Federal Reserve will take its Term Asset-Backed Securities Loan Facility off the drawing board and into the market on March 17. TALF will provide financing to investors to encourage the purchase of AAA-rated asset-backed securities comprising auto, credit card, student and SBA-guaranteed loans. The Federal Reserve bank of New York will lend up to $200 billion to qualified issuers and investors under the program, which the Fed hopes will generate as much as $1 trillion in lending.
Community banks are enthusiastic about the effort. Camden R. Fine, president and chief executive officer of the Independent Community Bankers of America, says his member “are well-positioned to help in the recovery efforts by extending lending in cities and towns throughout America. ICBA believes the TALF will help community banks make even more loans by thawing the secondary market. TALF also will help fix banks’ balance sheets by restarting the securitization market, says Kevin Conn, financial market equity analyst at MFS Investment Services.
Other observers are not so sure. “We broadly expect that the TALF will enjoy initial success, but its real mettle will be measured six months down the road by its usage remaining high and by tertiary impacts on other funding and lending mechanisms,” according to a note from Brian Yelvington, senior macro analyst at CreditSights. “The risk is that the TALF does its best March impression and blows in like a lion and out like a lamb, generating tons of interest from its private capital ‘vultures’ and then waning in participation as lending is not stimulated, investors become more cautious, and borrowers shrink in capacity.” Yelvington lauds TALF’s private/public structure and nonrecourse financing.
Gary B. Townsend, president and CEO of Hill-Townsend Capital, LLC, is far less encouraged about TALF’s prospects. “It will fail, principally because of legislation out of Congress and the administration inimical to a functioning securitization market,” he says. The securitization market “is very important to us—if you pass cram-down legislation and imperil contract law, the chances of restarting this market will be close to zero.” Townsend faults TALF and other government measures as being “highly complex, hard to administer, and fraught with moral hazard.”