Term Securities Lending and Loan Facilities - Essay Example

• The term asset-backed securities loan facility hereinafter referred to as TALF, is a loan facility with the issuance of securities that have asset backing collateralized by loans. (Federal Reserve)

Implementation and Objective:

• The TSLF was declared on March 11, 2008, and was implemented later on March 27, 2008. The objective of the weekly loan facility was to promote liquidity in the treasury and security markets, which could result in the advanced occupation of financial markets.
• The TALF was announced in the month of November 2008. The prime objective of this facility was to provide a funding facility to meet the needs of small and domestic businesses through the support of the issuance of asset-backed

Comparison with traditional monetary policy tools:

• The TSLF is in contrast to the conventional monetary policy used by the Federal Reserve used to answer the disruptions of the credit market. TSLF creates support of liquidity for the primary dealers where they are operating. TSLF was used in contrast to the conventional interest rate policy where the Federal Reserve eyes to increase the rate of interest at which the interbank dealing takes place. The Federal Reserve had to carry out asset purchases of large scale in order to increase interest rates. (Advisers)
• TALF is considered a monetary policy tool by the Federal Reserve as it was aimed at the reopening of the securitization market in order to improve access to credit instruments for small and household businesses. (Brown) This has given a rise to consumer and small business lending where the investors have gained a lot of confidence in the ability of the market to function without the support of the government. It was noticed that by March 2009, the percentage of purchases of asset-backed securities using TALF was around 60%. (Engel)