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

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Abstract

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.

Suggested Citation

  • Metrick, Andrew, 2020. "The Federal Reserve's Financial Crisis Response E: The Term Asset-Backed Securities Loan Facility," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 2(2), pages 144-167, April.
    • Handle: RePEc:ysm:ypfsfc:2266
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    Keywords

    Federal Reserve; Global Financial Crisis; Term Asset-backed Loan Facility; asset-backed securities; Section 13(3) of the Federal Reserve Act; Commercial mortgage-backed securities; securitization;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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