08 Apr 2009, Peter Madigan, Risk magazine
Releasing the latest data on Talf fund requests, the Federal Reserve Bank of New York reported that in the April funding round, auto loan asset-backed securities (ABS) investors and originators requested $811 million to purchase eligible securities, and credit card ABS purchasers asked for $896 million - a total of $1.7 billion under the Talf scheme.
This figure represents a 63.9% decline in sums requested from the initial Talf funding round held between March 17 and 19, which saw $4.7 billion sought. Auto ABS requests alone exceeded the entire April 7 offering, reaching $1.9 billion, while investors and originators received $2.8 billion in funds to purchase credit card ABSs.
No requests emerged at either auction for Talf funds to purchase student loan ABSs or loans guaranteed by the Small Business Administration.
Analysts have suggested instutions may be reluctant to accept US Treasury funds in case they are forced to abide by government edicts.
Specifically, traders have pointed out that two recent moves by Congress - the attempt to levy a 90% tax on bonuses, and the visa restrictions to limit the recruitment of non-US citizens to fill vacancies at US financial institutions that have accepted government funds under the Troubled Assets Relief Programme - have dissuaded firms from taking the money on offer.
"A number of investors are not willing to participate in the Talf yet because they are not yet ready to comply with some of the requirements the Treasury has or plans to impose. The fact that only two carmakers and one credit card issuer have participated this time around is definitely disappointing after $4.7 billion in issuance during the first round," said an ABS analyst at a European bank.
In a related development, on April 7 Federal Reserve chairman Ben Bernanke and New York Fed president William Dudley issued a joint response to a Congressional Oversight Panel (COP) enquiry into the operation of the Talf sent on March 20.
The response exposed some apparent misconceptions the COP holds about the Talf - illustrated by the panel querying "why the Treasury and Federal Reserve believe it is wise to commit billions of dollars to rebuild the market for collateralized debt obligations (CDOs) in light of the risks posed for the financial system by these arrangements", when CDOs are not eligible for funding under the scheme.
The 13-page joint response also clarified the protections within Talf to safeguard taxpayers from losses, why assessments by credit rating agencies are still being used to inform appraisals of creditworthiness, and justified the inclusion of US subsidiaries of non-US companies in the scheme on the basis of the credit and employment they provide to US citizens.
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