The Federal Reserve Board announced the creation of the Term Asset-Backed Securities Loan Facility (TALF) which will help market participants meet the credit needs of households and small businesses by supporting the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA).
Under the TALF, the Federal Reserve Bank of New York (FRBNY) will lend up to $200 billion on a non-recourse basis to holders of certain ABS, an amount equal to a discounted market value of the ABS. The loans will be secured at all times by the ABS. The U.S. Treasury Department, under the Troubled Assets Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008, will provide $20 billion of credit protection to the FRBNY in connection with the TALF.
New issuance of ABS declined precipitously in September and came to a halt in October. The ABS markets historically have funded a substantial share of consumer credit and SBA-guaranteed small business loans. Continued disruption of these markets could significantly limit the availability of credit to households and small businesses and thereby contribute to further weakening of U.S. economic activity. The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at normal interest rate spreads.
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