The Term Asset-Backed Securities Loan Facility (TALF) (U.S. GFC)

Journal of Financial Crises: Vol. 2 : Iss. 3, 281-306. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/11

Yale Program on Financial Stability Working Paper

26 Pages Posted: 26 Oct 2020

See all articles by June Rhee

June Rhee

Yale University - Yale Program on Financial Stability; Harvard Law School; Yale University - Yale Program on Financial Stability

Date Written: October 10, 2020

Abstract

In the fall of 2008, the securitization market, which was the major provider of credit for consumers and small businesses, came to a near halt. Investors in this market abandoned not only the residential mortgage-backed securities that triggered the financial crisis but also consumer and business asset-backed securities (ABS), which had a long track record of strong performance, and commercial mortgage-backed securities (CMBS). Also, the unprecedented widening of spreads for these securities rendered new issuance uneconomical, and the shutdown of the securitization market threatened to exacerbate the downturn in the economy.

On November 25, 2008, the Federal Reserve (the Fed) thus announced the Term Asset-Backed Securities Loan Facility (TALF). TALF was launched on March 3, 2009, to help stabilize funding markets for issuers in the securitization market. The TALF extended term loans, collateralized by the securities, to buyers of certain high-quality asset-backed securities. By reopening the ABS market, the Fed intended to ultimately support the provision of credit to consumers and small businesses. Instead of directly participating in the securitization market, the Fed encouraged private investors to do so by providing them with liquidity and only took risk in the loss of the value of ABS.

In aggregate, the Fed issued 2,152 loans, totaling $71.1 billion. The volume of outstanding loans peaked in March 2010 at $48.2 billion. Loans secured by nonmortgage ABS totaled $59 billion, and loans secured by legacy CMBS totaled $12 billion. The original expiration date for the TALF of December 31, 2009, was extended to March 31, 2010, for loans against ABS and legacy CMBS, and until June 30, 2010, for loans against newly issued CMBS. On October 29, 2014, the final outstanding TALF loan was repaid in full, and in the following month, a total of $745.7 million in accumulated fees and income was paid to the Treasury (90%) and the Federal Reserve Bank of New York (10%).

Keywords: asset-backed securities, ABS, commercial mortgage-backed securities, CMBS, securitization, loan, lending

JEL Classification: G01,G28

Suggested Citation

Rhee, June, The Term Asset-Backed Securities Loan Facility (TALF) (U.S. GFC) (October 10, 2020). Journal of Financial Crises: Vol. 2 : Iss. 3, 281-306. Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol2/iss3/11, Yale Program on Financial Stability Working Paper, Available at SSRN: https://ssrn.com/abstract=3717263

June Rhee (Contact Author)

Yale University - Yale Program on Financial Stability ( email )

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Harvard Law School ( email )

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Yale University - Yale Program on Financial Stability

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New Haven, CT 06520-8200
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