Term Asset-Backed Securities Loan Facility Research Articles

Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility

In response to immense strains in the asset-backed securities market in 2008 and 2020, the Federal Reserve and the U.S. Treasury twice launched the Term Asset-Backed Securities Loan Facility (TALF). TALF was an unusual crisis facility because it provided loans to a wide range of nonbank financial institutions. Using detailed loan-level data unexplored by previous researchers, we study the behavior of nonbank borrowers in TALF. We find the extent to which the actions of these borrowers supported key program goals--stabilizing markets quickly, winding down the program when it was no longer needed, providing liquidity to a wide range of assets, and having borrowers internalize credit risk rather than shift it to the government--were related to institutional differences across nonbanks. Since all TALF borrowers faced the same program terms and conditions, our study is able to highlight the role of these institutional constraints.

Toxic Asset Subsidies and the Early Redemption of TALF Loans

This paper develops a formula to numerically estimate the unsubsidized, fair-market value of the toxic assets purchased with Federal Reserve loans. It finds that subsidy rates on these loans were on average 33.9 percent at origination. In contrast, by the 3rd quarter of the 2010, there was on average no subsidy in TALF loans. The theoretical model is used to predict the early redemption of Term Asset-Backed Securities Loan Facility (TALF) loans used to purchase commercial mortgage-backed securities (CMBS). The predictions of the model are strongly supported by the data. In addition, this paper looks at the determinants of early redemption. CMBS originated inside the peak bubble years of 2005–2007 were much less likely to be redeemed early. The giant investment managers, Blackrock and PIMCO, were much more likely to redeem their TALF loans early than smaller investment managers.

Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility

Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility

The Term Asset-Backed Securities Loan Facility

The Term Asset-Backed Securities Loan Facility

COVID Response: The Term Asset-Backed Securities Loan Facility

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 paper, we 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. We 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, we 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.

Supporting Small Borrowers: ABS Markets and the TALF

On March 23, the Federal Reserve established the Term Asset-Backed Securities Loan Facility (TALF) to support consumer and small business lending.

The Federal Reserve's Financial Crisis Response E: The Term Asset-Backed Securities Loan Facility

Securitization is a process that allows banks and other lenders to package loans and sell them as bonds called asset-backed securities (ABS), removing them from their balance sheets and immediately generating cash for new loans. ABS are an important component of the financing cycle for many types of loans to households and small businesses, including mortgages. In the fall of 2008, financial markets began experiencing disturbances as the effects of the U.S. subprime market meltdown spread. The ABS market froze decreasing the volume of new loans to households and small businesses. The Federal Reserve became very concerned about the potential for these circumstances to further weaken the U.S. economy and, as a result, implemented the Term Asset-backed Loan Facility (TALF) to jumpstart the market and mitigate the negative effects on the economy. In this case we discuss the design, usage of the TALF and its impact on the securitization markets during the crisis.

Term Asset-Backed Securities Loan Facility

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.The Federal Reserve (Fed) thus decided to introduce the Term Asset-Backed Securities Loan Facility (TALF) 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. Preventing the shutdown of lending to consumers and small businesses was the goal. The Fed did not directly take on material credit risk in those loans, but encouraged private investors to do so by providing them with liquidity.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. There are no longer any loans outstanding under the TALF program.

Systemic Risk and the Pursuit of Efficiency

hat is systemic risk? When might it arise? How should it in- ‡uence policymakers? In this essay we identify systemic risk with the presence of linkages between market participants whereby problems for one directly create problems for others. We argue that such situations can arise from the use of contractual arrangements, especially debt that requires frequent re…nancing and liquidation in the event of an inability to repay. The presence of spillover eects can, in turn, lead to outcomes in the wake of shocks that can be unambiguously improved via policy intervention. Nonetheless, we caution against tak- ing this as a license to intervene after the fact, and instead suggest that observed contracting arrangements may be important in promoting ef- …cient trade between parties from a before the shockperspective. We argue that helping to ensure e¢ ciency as seen prior to a shock is the right goal for policymakers. Lastly, we note that the pursuit of such an objective may require credible commitments to tolerating ine¢ ciency after a shock. In the past two years, U.S. …nancial markets have undergone dra- matic changes, with storied …rms vanishing from existence and others surviving only as a direct result of public sector intervention. A handful of these events stand out as emblematic. These are, respectively, the bailouts of Bear Stearns, AIG, and the housing government-sponsored enterprises; the institution of large credit programs such as the Term Asset-Backed Securities Loan Facility (TALF) and the Troubled Asset Relief Program (TARP); and the striking nonbailout of Lehman Broth-

Comment on Securitization markets and central banking: An evaluation of the term asset-backed securities loan facility (TALF)

Comment on Securitization markets and central banking: An evaluation of the term asset-backed securities loan facility (TALF)

Securitization markets and central banking: An evaluation of the term asset-backed securities loan facility

In response to the near collapse of US securitization markets in 2008, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, which offered non-recourse loans to finance investors’ purchases of certain highly rated asset-backed securities. We study the effects of this program and find that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities. These findings suggest that the program improved conditions in securitization markets but did not subsidize individual securities. We also find that the risk of loss to the US government was small.

Securitization Markets and Central Banking: An Evaluation of the Term Asset-Backed Securities Loan Facility

Abstract In response to the near collapse of US securitization markets in 2008, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, which offered non-recourse loans to finance investors’ purchases of certain highly rated asset-backed securities. We study the effects of this program and find that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities. These findings suggest that the program improved conditions in securitization markets but did not subsidize individual securities. We also find that the risk of loss to the US government was small.

Toxic Asset Subsidies and the Early Redemption of TALF Loans

This paper develops a formula to numerically estimate the unsubsidized, fair-market value of the toxic assets purchased with Federal Reserve loans. It finds that subsidy rates on these loans were on average 33.9 percent at origination. Yet, by the 3rd quarter of the 2010, there was on average no subsidy in TALF loans. The theoretical model is used to predict the early redemption of Term Asset-Backed Securities Loan Facility (TALF) loans used to purchase commercial mortgage backed securities (CMBS). The predictions of the model are strongly supported by the data. In addition, this paper looks at the determinants of early redemption. CMBS originated inside the peak bubble years of 2005-2007 were much less likely to be redeemed early. The giant investment managers, Blackrock and PIMCO, were much more likely to redeem their TALF loans early than smaller investment managers.

Comment

Comment

Securitization Markets and Central Banking: An Evaluation of the Term Asset-Backed Securities Loan Facility

In response to the near collapse of US securitization markets in 2008, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, which offered non-recourse loans to finance investors' purchases of certain highly rated asset-backed securities. We study the effects of this program and find that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities. These findings suggest that the program improved conditions in securitization markets but did not subsidize individual securities. We also find that the risk of loss to the US government was small.

The ERISA Eligibility of TALF and PPIP Loans and Securities: Do the Government’s Programs and ERISA Mesh?

The Term Asset-Backed Securities Loan Facility (TALF) and the Legacy Loan and Legacy Security Public-Private Investment Program (PPIP) were created anticipating investment by employee benefit plans and other retirement arrangements subject to ERISA (Plans), but there was no specific coordination of these programs with, or amendment of, ERISA-related provisions to facilitate this investment. This article describes the ERISA considerations that are relevant to a Plan’s use of a TALF loan to finance its purchase of assetbacked and commercial mortgage-backed securities (ABS/ CMBS), either via a direct purchase of ABS/CMBS or by means of an intervening fund. It then discusses the ability of Plans to become investors in PPIP funds established to purchase CMBS/MBS legacy loans or securities given the additional ERISA complications that are created when a Plan invests in a managed fund. The article concludes that while the economy, the credit markets, and Plans could all benefit from allowing greater Plan investment in PPIP funds, current ERISA provisions hamper such investment. The author suggests that the U.S. Treasury might explore with the U.S. Department of Labor the possibility of granting an administrative exemption that could allow greater Plan participation in PPIP funds than is currently available. <b>TOPICS:</b>Fundamental equity analysis, technical analysis

The Term Asset-Backed Securities Loan Facility: The U.S. Government ABS Party’s Slow Start

<h3>Objective</h3> The objective of this study is to explore the experiences and perspectives of general practitioners’ and medical students’ use of, and behaviour on, social media and to understand how they negotiate threats to professional and personal life on social media. <h3>Design</h3> A two-phase qualitative design was used, consisting of semistructured interviews and follow-up vignettes, where participants were asked to respond to vignettes that involved varying degrees of unprofessional behaviour. Data were analysed using template analysis. <h3>Setting and participants</h3> Participants were general practitioner tutors and third year medical students who had just completed placement on the University of Limerick longitudinal integrated clerkship. Five students and three general practitioners affiliated with the medical school were invited to participate in one-to-one interviews. <h3>Results</h3> Three overarching themes, each containing subthemes were reported. ‘Staying in contact and up to date’ outlines how social media platforms provide useful resources and illustrates the potential risks of social media. ‘Online persona’ considers how social media has contributed to changing the nature of interpersonal relationships. ‘Towards standards and safety’ raises the matter of how to protect patients, doctors and the medical profession. <h3>Conclusion</h3> Guidance is required for students and medical practitioners on how to establish reasonable boundaries between their personal and professional presence on social media and in their private life so that poorly judged use of social media does not negatively affect career prospects and professional efficacy.

The ARRA of Our Ways

The American Recovery and Rein vestment Act (ARRA) of 2009 is an unprecedented effort to jump-start the economy, create or save millions of jobs, and put a down payment on addressing long neglected challenges so that the United States can thrive in the 21st century. ARRA is an extraordinary response to a crisis unlike any since the Great Depression. Its aims include stopgap measures for the tough economic times faced by the nation like those that are provided by other stimulus initiatives such as the Troubled Assets Recovery Program and the Federal Reserve's Term Asset-Backed Securities Loan Facility. ARRA measures include immediate fund