RTTNews - New York Federal Reserve Bank President William Dudley praised one of the Fed's lending facilities Thursday, stating that it is helping to spark consumer lending. The Term Asset-backed Securities Loan Facility, or TALF, is working as designed and the Fed is encouraged by the results.
Speaking at the Securities Industry and Financial Markets Association and Pension Real Estate Association's Public-Private Investment Program Summit in New York, Dudley said that 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.
The program was designed to stabilize the market for the kind of asset-backed securities that have poisoned the balance sheets of the country's financial institutions, and is aimed at small business and consumer lending.
In February the Fed expanded the TALF to $1 trillion from the previous level of $500 billion.
Dudley, who is the vice chairman of the interest-rate setting Federal Open Market Committee, focused the majority of his remarks on the progress of the TALF. He was relatively upbeat about the success of the program, stating that asset back securities markets have been gradually reviving, and that the financial markets seem to be on the path to recovery.
While it is still too soon to declare victory on this front, there have been significant improvements in interbank financing markets, he said regarding the state of financial markets.
However, it's not all blue skies, Dudley warned, stating that securitization markets remain significantly impaired, and in particular ABS markets remain strained.
Additionally, he signaled that the Fed will remain flexible with the program should it hit a roadblock or become inefficient.
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, he said of the TALF.
He also addressed the question of whether or not the TALF is a bad investment, and if the Fed is taking on large credit risks. Dudley answered that the risk of loss is very low, due to several protective layers like good credit quality and protection offered in the program to reduce the risk.
We expect that the program will be profitable for the taxpayers and will be successful in pushing down yields and increasing credit availability, Dudley said.
However, it is a challenge to keep the program attractive, he said, as the financial markets continue their trek towards stabilization.
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