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Treasury Provides TARP Funds to Federal Reserve
Consumer ABS Lending Facility
Washington-- The U.S. Treasury Department today
announced it will allocate $20 billion to back a lending
facility for the consumer asset backed securities market
established by the Federal Reserve Bank of New York.
The asset backed securities market provides liquidity to
financial institutions that provide small business loans and
consumer lending such as auto loans, student loans, and
credit cards. While ABS issuances in these categories were
roughly $240 billion in 2007, issuance of consumer ABS
declined precipitously in the third quarter of 2008 before
essentially coming to a halt in October. Continued
disruption in the ABS market could further deteriorate
credit availability for consumers and increase the
prospects for further deterioration in the economy
generally.
This facility, the Term Asset Backed Securities Loan
Facility, is intended to assist the credit markets in
accommodating the credit needs of consumers and small
businesses by facilitating the issuance of ABS and
improving ABS market conditions. The underlying credit
exposures of eligible securities initially must be newly or
recently originated auto loans, student loans, credit card
loans or small business loans guaranteed by the U.S.
Small Business Administration. The facility may be
expanded over time and eligible asset classes may be
expanded later to include other assets, such as
commercial mortgage-backed securities, non-agency
residential mortgage-backed securities or other asset
classes.
Under the new facility, the Federal Reserve Bank of New
York will lend up to $200 billion on a non-recourse basis
to holders of newly issued AAA-rated ABS for a term of at
least one year. The Federal Reserve will lend an amount
equal to the market value of the ABS less a haircut and
will be secured at all times by the ABS. The U.S. Treasury
Department will provide a $20 billion of credit protection to
the Federal Reserve in connection with the facility, using
its authorities in the Emergency Economic Stabilization Act
of 2008. The attached term sheet describes the basic
terms and operational details of the facility.
Consumer ABS Lending Facility
Washington-- The U.S. Treasury Department today
announced it will allocate $20 billion to back a lending
facility for the consumer asset backed securities market
established by the Federal Reserve Bank of New York.
The asset backed securities market provides liquidity to
financial institutions that provide small business loans and
consumer lending such as auto loans, student loans, and
credit cards. While ABS issuances in these categories were
roughly $240 billion in 2007, issuance of consumer ABS
declined precipitously in the third quarter of 2008 before
essentially coming to a halt in October. Continued
disruption in the ABS market could further deteriorate
credit availability for consumers and increase the
prospects for further deterioration in the economy
generally.
This facility, the Term Asset Backed Securities Loan
Facility, is intended to assist the credit markets in
accommodating the credit needs of consumers and small
businesses by facilitating the issuance of ABS and
improving ABS market conditions. The underlying credit
exposures of eligible securities initially must be newly or
recently originated auto loans, student loans, credit card
loans or small business loans guaranteed by the U.S.
Small Business Administration. The facility may be
expanded over time and eligible asset classes may be
expanded later to include other assets, such as
commercial mortgage-backed securities, non-agency
residential mortgage-backed securities or other asset
classes.
Under the new facility, the Federal Reserve Bank of New
York will lend up to $200 billion on a non-recourse basis
to holders of newly issued AAA-rated ABS for a term of at
least one year. The Federal Reserve will lend an amount
equal to the market value of the ABS less a haircut and
will be secured at all times by the ABS. The U.S. Treasury
Department will provide a $20 billion of credit protection to
the Federal Reserve in connection with the facility, using
its authorities in the Emergency Economic Stabilization Act
of 2008. The attached term sheet describes the basic
terms and operational details of the facility.
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