Wednesday, July 21, 2010
U.S. Fed optimistic on TALF protection
From The Hindu
In a sign that one of the areas at the heart of the financial markets meltdown might be recuperating, the Board of the Federal Reserve announced that it had agreed with the United States Treasury Department that the Treasury could reduce the credit protection it provided for the Term Asset-Backed Securities Loan Facility (TALF) under the Troubled Asset Relief Program (TARP).
Agreeing a reduction in the protection from $20 billion to $4.3 billion, the Fed Board noted that it had earlier authorised up to $200 billion in TALF loans, but when the program closed on June 30, 2010, there were $43 billion in loans outstanding.
The Fed added that under the TALF its New York branch had extended loans to investors in highly rated asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). “By encouraging issuance of ABS and CMBS, the TALF was designed to increase credit availability and support economic activity,” the central bank said in a statement.
It added that although the TALF extended $70 billion in loans, many TALF loans, which have initial maturities of three or five years, had been repaid early and, to date, “the TALF program has experienced no losses and all outstanding TALF loans are well collateralised”.
The Fed Board further said it viewed as highly likely the possibility that that the accumulated excess interest spread under the programme would cover any loan losses that may occur “without recourse to the dedicated TARP funds”.
In a sign that one of the areas at the heart of the financial markets meltdown might be recuperating, the Board of the Federal Reserve announced that it had agreed with the United States Treasury Department that the Treasury could reduce the credit protection it provided for the Term Asset-Backed Securities Loan Facility (TALF) under the Troubled Asset Relief Program (TARP).
Agreeing a reduction in the protection from $20 billion to $4.3 billion, the Fed Board noted that it had earlier authorised up to $200 billion in TALF loans, but when the program closed on June 30, 2010, there were $43 billion in loans outstanding.
The Fed added that under the TALF its New York branch had extended loans to investors in highly rated asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS). “By encouraging issuance of ABS and CMBS, the TALF was designed to increase credit availability and support economic activity,” the central bank said in a statement.
It added that although the TALF extended $70 billion in loans, many TALF loans, which have initial maturities of three or five years, had been repaid early and, to date, “the TALF program has experienced no losses and all outstanding TALF loans are well collateralised”.
The Fed Board further said it viewed as highly likely the possibility that that the accumulated excess interest spread under the programme would cover any loan losses that may occur “without recourse to the dedicated TARP funds”.
Labels: TALF loans, TALF protection, TARP
# posted by Narayan Lakshman @ 10:53 AM 
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