Fed's TALF unlocking ABS market: NY Fed official
Nancy Leinfuss
MIAMI (Reuters) - A U.S. Federal Reserve program to revive lending during the financial crisis has helped unlock credit markets and there are signs they are now less dependent on its support, a New York fed official said on Monday.
The Term Asset-Backed Securities Loan Facility (TALF) was created in March to revive consumer lending amid the financial crisis and reopen the securitization market -- a key funding tool for issuers of asset-backed securities (ABS).
It has succeeded in doing that by lowering funding costs and boosting ABS liquidity, said Susan Stiehm, markets officer and TALF manager at the Federal Reserve Bank of New York.
"Consumer ABS issuance has picked up with about $86 billion in TALF eligible issuance," said Stiehm during a keynote address at the ABS East industry conference.
Some non-TALF sales have been recorded in the ABS market along with more cash investor participation, marking further signs of recovery, she added.
"Many issuers are relying less on TALF financing. This is a hopeful sign of a non-TALF dependent market," said Stiehm.
Through securitization, issuers of ABS securities backed by consumer debt such as credit cards, auto loans and student loans are able to remove loans from their balance sheets, bundle them and sell them as securities. This allows lenders to make new loans and keep credit flowing to consumers.
Nearly one year ago, spreads across all ABS asset types widened to record wide levels amid a deep credit crisis that nearly shutdown the market as funding costs soared.
Through the TALF program, the Fed has made non-recourse loans to investors to purchase the securities. So far, investors have requested $49.7 billion of loans from the central bank.
ABS trading has resumed in the secondary market, investors have returned and spreads are considerably tighter.
Stiehm noted funding costs for issuers in the ABS market have fallen as spreads on "AAA" securities contracted by a hefty 500 to 800 basis points across various asset classes.
