Factbox: How the TALF loan program worked

Thu Sep 15, 2011 3:48pm EDT

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(Reuters) - Treasury Secretary Timothy Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said.

Following are five key facts about the Term Asset-Backed Securities Loan program:

-- The Fed and Treasury announced the creation of TALF in November 2008 to support lending to households and small businesses by providing liquidity to the frozen market for securities backed by bundles of car loans, equipment leases, and student and small business loans.

-- The Treasury, through its $700 billion Troubled Asset Relief Program, initially agreed to provide up to $20 billion in capital to TALF, putting Treasury first in line to absorb any potential losses from the program. This leveraged Treasury funds to provide TALF with the capacity to lend up to $200 billion.

-- Under TALF, the Fed agreed to take in high-rated asset backed securities (ABS) -- with a valuation "haircut" -- as collateral for loans to qualified firms for investment into new asset-backed securities. This allowed lenders, in turn, to continue to make new loans for cars, college education and small businesses even when crisis-wracked markets were unwilling to purchase their securities. The Fed effectively became the ABS market-maker.

-- Among the first TALF borrowers were automakers Ford Motor Co and Nissan Motor Co Ltd. According to the New York Federal Reserve Bank, a total of $71.1 billion was loaned out under TALF, but never more than $49 billion at any one time before it stopped making new loans in July 2010. About $11.6 billion in loans remained outstanding as of last week, according to Fed data. No credit losses have been reported.

-- The Fed claims TALF supported nearly 3 million auto loans, 1 million student loans and 900,000 small business loans, while it restarted the ABS market. But the program came under criticism from lawmakers and oversight bodies for having a less-than-clear rationale for its terms and by having taxpayers shoulder the potential losses while private sector participants benefited from non-recourse loans. While non-recourse loans are secured by collateral, the borrower is not personally liable for the debt.

(Reporting by David Lawder and Mark Felsenthal; Editing by Leslie Adler)

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