Spring Break
Fed launches new $200B consumer credit program
Associated Press
Issue date: 3/3/09 Section: News
WASHINGTON (AP) - The Federal Reserve on Tuesday rolled out a much-awaited program aimed at boosting the availability of credit to consumers and small businesses.
The Fed will lend up to $200 billion to spur consumer lending - for autos, education, credit cards and other consumer debt. The money will be used to provide financing to investors to buy up the debt.
The bold program, dubbed the Term Asset-Backed Securities Loan Facility, was first announced late last year and originally scheduled to start in February.
Participants - companies and investors that pledge eligible collateral to back the loan - must request the new government loans by March 17. The Fed will provide the three-year loans on March 25.
The Fed said the program has the potential to generate up to $1 trillion of lending for businesses and households.
"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," the Fed and Treasury Department said in a joint statement. "The TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy."
Under the program, the Fed will buy securities backed by different types of debt including credit card, auto, student and small business loans. The credit crunch - the worst since the 1930s - has made it much more difficult for people to obtain such financing , and those that do can be socked with high rates.
Prior to the financial crisis, banks relied heavily on packaging loans into securities and selling them to fund additional lending. That process has financed about 25 percent of all auto, student and other consumer loans in recent years, the Treasury Department said Tuesday, until the credit markets ground to a halt in October.
Anil Kashyap, a professor at the University of Chicago's Booth School of Business, said the program should make it easier for consumers to get loans. But he cautioned that the Fed's willingness to finance some debt could distort the markets by making other debt securities that lack the government's backing less attractive to investors.
The Fed will lend up to $200 billion to spur consumer lending - for autos, education, credit cards and other consumer debt. The money will be used to provide financing to investors to buy up the debt.
The bold program, dubbed the Term Asset-Backed Securities Loan Facility, was first announced late last year and originally scheduled to start in February.
Participants - companies and investors that pledge eligible collateral to back the loan - must request the new government loans by March 17. The Fed will provide the three-year loans on March 25.
The Fed said the program has the potential to generate up to $1 trillion of lending for businesses and households.
"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," the Fed and Treasury Department said in a joint statement. "The TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy."
Under the program, the Fed will buy securities backed by different types of debt including credit card, auto, student and small business loans. The credit crunch - the worst since the 1930s - has made it much more difficult for people to obtain such financing , and those that do can be socked with high rates.
Prior to the financial crisis, banks relied heavily on packaging loans into securities and selling them to fund additional lending. That process has financed about 25 percent of all auto, student and other consumer loans in recent years, the Treasury Department said Tuesday, until the credit markets ground to a halt in October.
Anil Kashyap, a professor at the University of Chicago's Booth School of Business, said the program should make it easier for consumers to get loans. But he cautioned that the Fed's willingness to finance some debt could distort the markets by making other debt securities that lack the government's backing less attractive to investors.
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