Term Asset-backed-securities Lending Facility (TALF) Helped Support
Auto, Small Business, and Student Loans to Consumers and Businesses after
Credit Markets Seized Up During the Financial Crisis
WASHINGTON --
Today, the U.S. Department of the Treasury announced the full repayment with
interest of its investment through the Term Asset-backed-securities Lending
Facility (TALF). After giving effect to today’s announcement, interest and
other gains above principal repayments to date for Treasury from the program
would total $173 million – with additional payments expected moving forward.
The TALF program, which the Federal Reserve Board and
Treasury announced in November 2008, was one part of the federal government’s
broad efforts to help unlock credit for consumers and businesses during the
financial crisis. TALF supported the issuance of nearly 3 million auto loans,
more than 1 million student loans, nearly 900,000 loans to small businesses,
150,000 other business loans, and millions of credit card loans.
“TALF helped finance millions of new loans to consumers and
businesses after the credit markets froze during the financial crisis,” said
Assistant Secretary for Financial Stability Timothy G. Massad. “Now, this
program is being wound down at a profit for taxpayers.”
Under TALF, the Federal Reserve Bank of New York (FRBNY)
lent funds to investors in highly rated asset-backed securities (ABS) and
commercial mortgage-backed securities (CMBS). By encouraging issuance of ABS
and CMBS, which are securities backed by consumer and business loans, the TALF
helped support the economy by increasing credit availability to American
households and businesses.
As part of the program, Treasury originally pledged $20
billion in credit protection through the Troubled Asset Relief Program (TARP)
against potential losses on TALF loans. In light of repayments over time and
the number of TALF loans outstanding, Treasury’s credit protection commitment
was subsequently reduced to $4.3 billion in June 2010 and to $1.4 billion in
June 2012.
Today, due to the fact that the accumulated fees collected
through TALF ($856 million) exceed the total principal amount of TALF loans
outstanding ($556 million), Treasury’s commitment of TARP funds to provide
credit protection is no longer necessary. Moreover, the early repayment
of TALF loans has allowed the $100 million in temporary loans that Treasury
made over the course of the program under its credit protection commitment to
help finance TALF to be repaid in full with $13 million in interest.
The TALF remains a joint Treasury-Federal Reserve program
supported by earnings due to the Treasury from the program and by collateral
securing each TALF loan. The Treasury and Federal Reserve will continue
to consult on the administration of the program. Any excess interest,
fees, and gains collected above the remaining principal on outstanding TALF
loans will be divided between Treasury (90 percent) and the Federal Reserve (10
percent). There will be an initial payment of approximately $177 million
divided between Treasury and the Federal Reserve reflecting the excess of fees
collected to date and the current remaining principal on outstanding TALF
loans. There will then be additional payments as the remaining TALF loans
are repaid.
Given that Treasury’s investment is being repaid in full
with interest, each additional dollar Treasury collects through TALF moving
forward represents an additional dollar of profit for taxpayers. The
Federal Reserve is also fully protected against any losses on the remaining
outstanding TALF loans, and its profits on repayment of TALF credits ultimately
accrue to the taxpayer.
The final TALF loan is scheduled to mature on March 30,
2015. All loans remain well collateralized and current in payments of
principal and interest.
Overall, nearly 93 percent ($387 billion) of the $418
billion in funds disbursed for TARP have already been recovered to date through
repayments and other income. For more details on Treasury’s lifetime cost
estimates for TARP programs, please visit Treasury’s Monthly 105(a) Report to Congress
on TARP at this link.
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