Fed launches $200B consumer credit program-WEB ONLY

The Federal Reserve today rolled out a much-awaited program aimed at
boosting the availability of credit to consumers and small businesses.

The Fed will lend up to $200 billion to spur consumer lending – for
autos, education, credit cards and other consumer debt. The money will
be used to provide financing to investors to buy up the debt.

The bold program, dubbed the Term Asset-Backed Securities Loan
Facility, was first announced late last year and originally scheduled
to start in February.

Participants – companies and investors that pledge eligible collateral
to back the loan – must request the new government loans by March 17.
The Fed will provide the three-year loans on March 25.

The Fed said the program has the potential to generate up to $1 trillion of lending for businesses and households.

“The TALF is designed to catalyze the securitization markets by
providing financing to investors to support their purchases of certain
AAA-rated asset-backed securities,” the Fed and Treasury Department
said in a joint statement. “The TALF will assist lenders in meeting the
borrowing needs of consumers and small businesses, helping to stimulate
the broader economy.”

Under the program, the Fed will buy securities backed by different
types of debt including credit card, auto, student and small business
loans. The credit crunch has made it much more difficult for people to
obtain such financing , and those that do can be socked with high rates.

Prior to the financial crisis, banks relied heavily on packaging loans
into securities and selling them to fund additional lending. That
process has financed about 25 percent of all auto, student and other
consumer loans in recent years, the Treasury Department said today,
until the credit markets ground to a halt in October.

Anil Kashyap, a professor at the University of Chicago’s Booth School
of Business, said the program should make it easier for consumers to
get loans. But he cautioned that the Fed’s willingness to finance some
debt could distort the markets by making other debt securities that
lack the government’s backing less attractive to investors.

“We’d really rather the credit markets just work properly,” Kashyap said.
The Fed plans to keep the program running through December, but said it could be extended.

Treasury Secretary Timothy Geithner announced an expansion of the Fed’s
program on Feb. 10, saying it also will include support for commercial
mortgage-backed securities. The central bank said teams from Treasury
and the Fed are now analyzing the right terms for the commercial
real-estate component.

The Fed and Treasury currently anticipate that securities backed by car
fleet leases as well as certain equipment – including for heavy
construction and for agriculture – will be eligible for Fed funding in
its April operation.

Participants in the second round of funding must request the government
loans by April 7, which the Fed will disburse on April 14.

The program, the Fed said, will remain focused on securities that will
have the greatest impact to aid the troubled economy and shaky
financial markets and that can be added at a low risk to the government.