A top Federal Reserve official said Thursday a program aimed to revive consumer lending markets is making headway.
Referring to what’s called the Term Asset-backed Securities Loan Facility, Federal Reserve Bank of New York President William Dudley said “so far, the evidence indicates that the program is working as designed.”
He added, “although it is still too early to say the TALF has been a resounding success, we at the Fed are encouraged by the results so far.”
Dudley, who is the vice chairman of the interest-rate setting Federal Open Market Committee, was speaking from comments prepared for delivery before a gathering of the Securities Industry and Financial Markets Association and Pension Real Estate Association.
Dudley was addressing the situation surrounding the TALF, which was announced last fall, and altered notably as it has gone along. The program lends cash against a wide range of securities that finance activities in the consumer lending sphere.
Dudley has tackled the topic of the TALF before, and said in mid-April in Nashville that the program was off to a “relatively slow start” as some investors appear to be wary of tapping certain liquidity programs. His assessment was a let down, because the TALF had been birthed to great expectations that it would finally unlock lending where it’s most needed.
Getting banks to lend again has been a key aim of Fed policy. The Fed has flooded the financial system with liquidity but thus far, much of that money has stayed with banks. The central bank has also instituted a series of aggressive market interventions aimed at keeping borrowing rates low.
Dudley’s remarks Thursday represented a shift in tone regarding the TALF program. He noted issuance of asset backed securities “has been gradually reviving” amid rising levels and a broadening of the types of securities offered, although it’s unlikely the market will return to levels of issuance seen before the start of the crisis.
Dudley explained the future of the TALF program is not set in stone. “We will encounter further hurdles that we will have to overcome, adjusting and modifying the program as needed in order to make it more effective.”
The bank president said he thinks fears that the TALF program will be a money loser for the government are misplaced.
“From the Federal Reserve’s perspective, the risk of loss is very low” due to the good credit quality of the collateral, the protection offered by the haircut involved in the program, and plans at the Fed designed to deal with troubled collateral, the official said.
Dudley also noted that in the even of losses, the Treasury will take a hit before the Fed does. “We expect that the program will be profitable for the taxpayers and will be successful in pushing down yields and increasing credit availability,” the official said."