In expanding the TALF yesterday (that's one of the program through which the Fed loan banks money in exchange for unsaleable assets, the Fed said:
The Federal Reserve Board on Friday announced that, starting in June, commercial mortgage-backed securities (CMBS) and securities backed by insurance premium finance loans will be eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF).
The CMBS market came to a standstill in mid-2008. The inclusion of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties. CMBS accounted for almost half of new commercial mortgage originations in 2007.
More than 1.5 million insurance premium finance loans are extended to small businesses each year so they can obtain property and casualty insurance. The loans are often funded through the asset-backed securities (ABS) market and have become more expensive and more difficult to obtain since the shutdown of that market last fall. The inclusion of insurance premium ABS as TALF-eligible collateral will facilitate the flow of credit to small businesses.
Why doesn't the Fed ever go through notice and comment for its initiatives during the financial crisis? It could be the emergency nature of the action, which can be discerned, in part, from the emergency part of the Federal Reserve Act used to justify the program:
The Board authorized the TALF on November 24, 2008, under section 13(3) of the Federal Reserve Act. Under the TALF, the Federal Reserve Bank of New York extends loans secured by AAA-rated ABS backed by newly and recently originated loans. On February 10, 2009, the Board announced that it is prepared to undertake a significant expansion of the TALF. Friday's announcement marks another step along that expansion.
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1. Posted by fedgovenor on May 2, 2009 @ 11:18 | Permalink
Not only is there no notice or comment, the legal obligations which must be met before the Fed can make such loans are completely non-transparent.
The Federal Reserve does not release to the public or Congress the results of the vote that is required to be taken by all Governors before credit may be extended to a corporation in 13.3 exigent circumstances
At least 5 affirmative votes are required by law.
One has no way to determine if a vote was even held in accordance with the law. Of course, one assumes an actual vote was held.
Right?
The Federal Reserve is also required by law to make such loans only after it determines that no other banking institutions would make such loans. But in fact, some banks are making P&C insurance loans. One might be of the opinion that such loans are historically expensive at this time, but they are certainly available and being made by banking institutions all across America.
Conveniently, that process is also non-transparent. What evidence was gathered to support the "exigent cicrumstances?"
One assumes a process was actually undertaken.
Right?
2. Posted by David Zaring on May 2, 2009 @ 13:14 | Permalink
Hmmm. Nice point; the Fed releases votes eventually, but I don't think it's in the announcement.
3. Posted by fedgovernor on May 2, 2009 @ 17:54 | Permalink
My second point was the real meat.
I'm certain there was a vote.
I doubt that the Fed has met its legal obligations regarding ascertaining availability of these loans in the market.
But then again, that's why the process is opaque.
Right?
4. Posted by Business Loans on March 23, 2011 @ 10:46 | Permalink
A new term sheet and a frequently-asked-questions document, specific to the CMBS collateral expansion, are attached. Also attached is a revised frequently-asked-questions document for the TALF program, including a description of the premium finance ABS collateral expansion as well as other changes.
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