The Term Asset-Backed Securities Loan Facility

Abstract

The COVID-19 pandemic disrupted the asset-backed securities (ABS) market, resulting in higher spreads on ABS and briefly halting the issuance of some ABS. On March 23, 2020, the Federal Reserve established the Term Asset-Backed Securities Loan Facility (TALF) to support the flow of credit to consumers and businesses by re-enabling the issuance of ABS. In this article, the authors describe how TALF works, how much it was used, and its effect on the issuance and spreads of TALF-eligible securities relative to those of TALF-ineligible securities. They find that both the introduction of TALF and its subsequent expansion were associated with statistically significant declines in the spreads of TALF-eligible relative to TALF-ineligible ABS. However, the facility did not have a statistically significant effect on issuance. Finally, they compare TALF with an earlier version of the facility that was implemented during the global financial crisis and discuss lessons learned from implementing the program.

Keywords: Federal Reserve, Term Asset-Backed Securities Loan Facility, TALF, COVID crisis, Fed facility, securitization, ABS market, Federal Reserve lending facilities

JEL Classification: G01, G18, G23