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The U.S. Federal Reserve Board and the U.S. Department of the Treasury this week continued ironing out how the new Term Asset-Backed Securities Loan Facility will operate and which types of securities it will support. The central bank announced Tuesday that it will work with the Obama administration to lend up to $1 trillion against AAA-rated securities that help fund several types of small-business and consumer lending, including credit card, auto and student loans, reports CardLine sister publication American Banker. Officials now are considering making commercial and residential mortgage-backed securities eligible for TALF funding, too. The plan makes the lending facility's price tag five times as large as the $200 billion the Fed initially committed when it announced the program in November (CardLine, 11/26/08), and the Treasury is quintupling its stake, to $100 billion. Under the program, the Fed will lend to investors money to buy securities backed by consumer loans. The hope is that TALF will provide an incentive for investors to buy the securities, which in turn would help liquefy frozen markets for consumer debt. The program is supposed launch this month. It appears that will not happen, but officials now say the Fed will announce a start date for the program later this month, American Banker reports. Structuring the facility properly is a complicated and important task, but investors need encouragement to invest again in consumer-lending markets, and the sooner the better, John Jay, senior analyst at Boston-based consultancy Aite Group LLC, tells CardLine. "The marketplace is not big on talk; it's big on certainty. If there's a lot of uncertainty, there could be a lot of discounting going forward," Jay says. "Right now, there's a shortage of buyers, even for AAA" asset-backed securities.
