The U.S. Department of the Treasury and the Federal Reserve Board Tueday announced the launch of their latest initiative designed to get credit flowing once again, known as the Term Asset-Backed Securities Loan Facility.

The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities. These markets have been virtually shuttered since the financial crisis grew deeper last October. The Fed and Treasury hope that the TALF will reopen these markets, assisting lenders in meeting the borrowing needs of consumers and small businesses, and helping to stimulate the broader economy.

Under Tuesday’s announcement, the Federal Reserve Bank of New York will lend up to US$200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March. On March 25, those new securitizations will be funded by the program, creating new lending capacity for additional future loans. The government suggests that the program has the potential to generate up to US$1 trillion of lending for businesses and households.

The program will hold monthly fundings through December, or longer if the Fed chooses to extend the facility.

IE