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.