Fed extends loan program to 2010 | Shanghai Daily

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August 18, 2009

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Fed extends loan program to 2010

THE Federal Reserve has extended a program intended to spur lending to United States consumers and small businesses at lower rates, but the central bank will not expand the types of loans made.

The Fed said yesterday it extended its Term Asset-Backed Securities Loan Facility (TALF) through March 31, 2010, for most types of loans it makes. The program was to end on December 31.

The TALF started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession.

Under the program, investors use the funds to buy securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.

The program for commercial mortgage-backed securities was extended through June 30 because issuing new securities in that area "can take a significant amount of time to arrange," according to a joint news release from the Fed and the Treasury Department.

The broader TALF program had gotten off to a lethargic start, hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.

The program has the potential to generate up to US$1 trillion in lending for households and businesses, according to the government. Spurring such lending is vital to turn the economy around.

The Fed and Treasury yesterday said they were prepared to reconsider this decision if financial or economic developments conditions indicate that such an expansion would still be warranted. However, the government believes the financial system is beginning to stabilize after being hit last fall by the worst financial crisis since the Great Depression.

"Conditions in financial markets have improved considerably in recent months," the Fed and Treasury said in their statement.

"Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time."

The Fed last week delivered a vote of confidence in the economy, saying the downturn appeared to be "leveling out."




 

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