The Federal Reserve’s Term Asset-Backed Securities Loan Facility, announced in late November to cheers and praise, is unlikely to reinvigorate the consumer credit markets, according to a new report from TowerGroup. TALF is designed to revive the flagging ABS market, which essentially shut down as 2008 progressed. The report notes that U.S. credit issuers “rely on ABS for 50 percent of the capital funding for their lines of credit.” Home equity loans and lines of credit are largest users of ABS; student and auto loans “have been heavily dependent on ABS as a funding source.”

TALF is supposed to restore confidence to the ABS world, but the “remedy is not up to the scale of the problem,” according to the TowerGroup report, partly because of proposed FASB rule changes that would force financial institutions to put ABS and other derivatives on the balance sheet, partly because of the tough new restrictions imposed on credit card issuers, and partly because TALF’s volume—the Fed will offer $200 billion in nonrecourse loans—is dwarfed by the magnitude of the problem.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.