Fed Aims to Boost Consumer Lendingby Tim Manni
In a major announcement made this morning, the Federal Reserve has begun to construct some relief for Main Street — finally! As credit conditions worsened in September and seemingly ground to a halt in October, consumers suddenly found themselves unable to pull credit from anywhere. The Fed announced this morning the creation of the Term Asset-Backed Securities Loan Facility (TALF) that will “lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS” to increase the issuance of debt designed to free up money for credit cards, auto loans, student loans, and small business loans:
The Fed hopes the plan will create liquidity in the market for securities backed by the receivables from such loans, which in turn would encourage originators of consumer loans to restart lending to individuals.
“The TALF is designed to increase credit availability and support economic activity by facilitating renewed issuance of consumer and small business ABS at more normal interest rate spreads,” wrote the Federal Reserve in this morning’s press release.
Interest-rate spreads of ABS (asset-backed securities) rose to levels not seen in recent history. The large spreads generated greater risk, further diluting the availability of ABS, which funded a large portion of consumer credit in the market. The lack of credit availability has already taken a destructive toll on American consumers, households, and small businesses. This has been the first initiative we have seen to reestablish consumer lending.
What does this mean for consumers? According to Moody’s, there has been no issuance of credit card ABS since September. Moody’s statistic proves the difficulty consumers have faced gaining access to credit over the last few months . The Fed’s decision is designed to increase the issuance of credit cards, auto loans, student and small business loans. The “normal” access to credit is and always has been fundamental to the survival and livelihood of consumers and businesses alike.