Fed Announces TALF Will Start Loans by March 25th

$ 1 trillion to go to work

March 3 (Bloomberg) — The Federal Reserve said its $1 trillion program to prop up the market for consumer and business loans will start disbursing funds March 25 and will probably accept securities backed by vehicle-fleet and equipment leases.

The Fed also lowered interest rates and so-called collateral haircuts for loans tied to asset-backed securities with guarantees by the Small Business Administration or to government- guaranteed student loans, the central bank and U.S. Treasury said in a statement in Washington.

The Fed and Treasury “currently anticipate that ABS backed by rental, commercial, and government vehicle fleet leases, and ABS backed by small ticket equipment, heavy equipment, and agricultural equipment loans and leases will be eligible for the April funding of the TALF,” which is scheduled for April 14, the agencies said.

Chairman Ben S. Bernanke and his colleagues, after cutting the benchmark interest rates almost to zero, are counting on the Term Asset-Backed Securities Loan Facility to help revive credit and end what may become the deepest U.S. recession since World War II.

The Fed originally planned to start the program in February. Central bank officials postponed the plan to ensure “all our legal and procedural steps had been taken,” Chairman Ben S. Bernanke said in congressional testimony Feb. 25.

The TALF will start by offering $200 billion in loans to hedge funds and other investors aimed at jumpstarting lending to consumers for autos, education and credit cards and to small businesses. The program also will help auto dealers finance the cars on their lots.

Protect the Fed

Treasury is providing $20 billion in capital from the Troubled Asset Relief Program to protect the Fed from losses. Treasury Secretary Timothy Geithner plans to increase the contribution to $100 billion, letting the Fed expand the program to $1 trillion and add other assets such as commercial mortgage- backed securities.

The central bank announced the TALF in November, and said in February the program could be expanded to commercial mortgage- backed securities and private-label residential mortgage-backed securities.

The Fed said on Dec. 19 it extended the term of TALF loans to three years from one year and will lend to all eligible borrowers rather than through an auction process.

The Fed’s Open Market Committee said in its Jan. 28 policy statement that it will “assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.”