Fed Launches New Loans Aimed To Loosen Credit Market

The Federal Reserve just launched its new $200 billion program to help lending to small businesses and consumers.

Called the Term Asset-Backed Loan Facility (TALF, not to be confused with TARP), the loans are meant to be quick-strike: participants must request the loans by March 17 and the Fed will hand them out by March 25.

This program has been eagerly awaited since it was announced last fall.

You can read the details of the plan here.

The money won't go directly as loans to businesses; instead they are meant for investors who buy AAA-rated asset-backed securities backed by auto loans, credit card loans, student loans and so forth.

Loans to consumers and businesses won't start flowing again until the securitization market unfreezes, so the Fed's new plan is aimed at cracking that open.

(Here's a good explanation of how securitization works.)

The securitization markets "have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October," the Fed wrote this morning. "By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy."

-- Frank Ahrens
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