Investors Submit TALF Funding Requests

The New York Federal Reserve Bank received $4.7 billion in funding requests for the first round of the Fed’s Term Asset-Backed Securities Loan Facility (TALF). Investors had until late last night to submit their loan requests.

The N.Y. Fed reported it had received $1.9 billion associated with auto loans, $2.8 billion linked to credit cards, yet none so far for student loans or small businesses:

The central bank is offering loans to institutional investors that buy new asset-backed securities, letting these traditional buyers of pooled credit-card and auto loans to get leverage at discount rates. It hopes luring members from the so-called shadow banking system — the pension funds and hedge funds that underwrote this decade’s credit boom — will make it easier for financial firms that make credit-card and other consumer loans to lower their rates and get borrowing going again.

“This is a good start for a program that we will continue to build on in the future,” said Federal Reserve Bank of New York President William C. Dudley. “It is encouraging that the spreads in the areas where the program is now focused have narrowed significantly. Our goal is to get the securitization market working again.”

Although not even $5 billion of the proposed $200 billion was requested yesterday, it was significantly crucial that the program has gotten the ball rolling. “Even though these are small transactions, it’s helping to restart price discovery,” said HSH Vice President Keith Gumbinger.

The ongoing problem has been that no one knew what these investments were worth. With so few deals taking place, credit markets were shutting down. Even the mild participation in the TALF so far shows other investors what the markets will bear — it will become an immediate reference point for future deals.

The TALF was originally announced by the Fed on November 25 to “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 has gotten off to a slow start, partly due to initial speculation by considering participants. An initial provision announced at the onset of the program — requiring participants to open up their financial records to the Federal government — has since been amended. Yet some critics of the program continue to speculate that the TALF could soon mirror the negative aspects of the TARP program (restrictions, taxes, fines, etc.).

Details on the next round of TALF requests will be released on March 24.