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Home > Markets > Term Asset-Backed Securities Loan Facility

Term Asset-Backed Securities Loan
Facility: Frequently Asked Questions
Effective February 13, 2009

Securities Lending
Term Securities
Lending Facility
Commercial Paper
Funding Facility
Money Market Investor
Funding Facility
Term Asset-Backed
Securities Loan Facility
TALF Program Terms
and Conditions
TALF FAQs
Primary Dealer Credit
Facility
Primary Dealers

GENERAL

Why is the Federal Reserve establishing the TALF?
The asset-backed securities (ABS) market has been under strain for
some months. This strain accelerated in the third quarter of 2008
and the market came to a near-complete halt in October. At the
same time, interest rate spreads on AAA-rated tranches of ABS rose
to levels well outside the range of historical experience, reflecting
unusually high risk premiums. The ABS markets historically have
funded a substantial share of consumer credit and U.S. Small
Business Administration (SBA)-guaranteed small business loans.
Continued disruption of these markets could significantly limit the
availability of credit to households and small businesses and thereby
contribute to further weakening of U.S. economic activity. 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.
How will the TALF work?
Under the TALF, the Federal Reserve Bank of New York will provide
non-recourse funding to any eligible borrower owning eligible
collateral. On a fixed day each month, borrowers will be able to
request up to two three-year TALF loans. Loan proceeds will be
disbursed to the borrower, contingent on receipt by the New York
Fed’s custodian bank (custodian) of the eligible collateral, an
administrative fee, and margin, if applicable. As the loan is
non-recourse, if the borrower does not repay the loan, the New York
Fed will enforce its rights in the collateral and sell the collateral to a
special purpose vehicle (SPV) established specifically for the purpose
of managing such assets. The New York Fed will publish a Master
Loan and Security Agreement (MLSA) which will provide further
details on the terms that will apply to borrowings under the TALF.
The TALF loan is non-recourse except for breaches of representations,
warranties and covenants, as further specified in the MLSA.
ELIGIBLE BORROWERS

Who may borrow under the TALF?
Any U.S. company that owns eligible collateral may borrow from the
TALF provided the company maintains an account relationship with a
primary dealer. An entity is a U.S. company if it is (i) a business
entity or institution that is organized under the laws of the United
States or a political subdivision or territory thereof
(U.S.-organized) and conducts significant operations or activities in
the United States (regardless of whether any such an entity has a
parent company that is not U.S.-organized), including any
U.S.-organized subsidiary of such an entity; (ii) a U.S. branch or
agency of a foreign bank (other than a foreign central bank) that

QUICK LINKS
TALF Master Loan and
Security Agreement
Primary Dealers List

maintains reserves with a Federal Reserve Bank; or (iii) an
investment fund that is U.S.-organized and managed by an
investment manager that has its principal place of business in the
United States. Notwithstanding the foregoing, a U.S. company
excludes any entity that is controlled by a foreign government or is
managed by an investment manager controlled by a foreign
government.
May a U.S. subsidiary of a foreign entity borrow from the
TALF?
A U.S.-organized operating subsidiary of a foreign entity may borrow
from the TALF so long as (i) the U.S. subsidiary conducts significant
operations or activities in the United States and (ii) the U.S.
subsidiary is not directly or indirectly controlled by a foreign
government. A U.S.-organized investment fund subsidiary of a
foreign entity may borrow from the TALF so long as (i) the U.S.
subsidiary is managed by an investment manager that has its
principal place of business in the United States; (ii) the U.S.
subsidiary is not directly or indirectly controlled by a foreign
government; and (iii) the investment manager of the U.S. subsidiary
is not directly or indirectly controlled by a foreign government.
What is an “investment fund” for purposes of the TALF eligible
borrower definition?    
An investment fund is any type of pooled investment vehicle,
including a hedge fund, a private equity fund, and a mutual fund, or
any vehicle that primarily invests in eligible collateral and borrows
from the TALF.  
What types of investment funds are eligible borrowers?
Investment funds that are organized in the United States and
managed by an investment manager that has its principal place of
business located in the United States are eligible borrowers for
purposes of the TALF. However, any investment fund that is
controlled by a foreign government or is managed by an investment
manager controlled by a foreign government is not an eligible
borrower for purposes of the TALF.
Example
InvestcoBermuda is a “master” investment fund organized in
Bermuda that makes joint investments on behalf of InvestcoUS, a
U.S.-organized investment fund, and InvestcoCayman, a Cayman
Islands-organized investment fund. InvestcoBermuda, InvestcoUS,
and InvestcoCayman are all managed by an investment manager with
its principal place of business in the United States. Only InvestcoUS
is an eligible borrower because it is the only investment fund that is
U.S.-organized. If, however, InvestcoBermuda establishes Newco, a
subsidiary investment fund, in the United States and hires its U.S.based investment manager to manage Newco, Newco would be an
eligible borrower for purposes of the TALF.
What is the definition of “controlled” for purposes of the
eligible borrower definition?
For purposes of the eligible borrower definition, a foreign government
controls a company if, among other things, the foreign government
owns, controls, or holds with power to vote 25 percent or more of a
class of voting securities of the company.
Can a newly formed investment fund borrow from the TALF?
Yes, so long as it satisfies all the eligible borrower requirements set
forth above.
ELIGIBLE COLLATERAL

What types of ABS are eligible collateral under the TALF?
Eligible collateral (eligible ABS) will include U.S. dollar-denominated
cash (that is, not synthetic) ABS that have a credit rating in the
highest long-term or short-term investment-grade rating category
from two or more major nationally recognized statistical rating
organizations (NRSROs) and do not have a credit rating below the
highest investment-grade rating category from a major NRSRO.
Eligible small business ABS also will include U.S. dollar-denominated
cash ABS that are, or for which all of the underlying credit exposures
are, fully guaranteed as to principal and interest by the full faith and
credit of the U.S. government.

All or substantially all of the credit exposures underlying eligible ABS
must be exposures to U.S.-domiciled obligors. The underlying credit
exposures of eligible ABS must be auto loans, student loans, credit
card loans, or small business loans fully guaranteed as to principal
and interest by the SBA. The set of permissible underlying credit
exposures of eligible ABS may be expanded over time. The
underlying credit exposures must not include exposures that are
themselves cash or synthetic ABS. The expected life for credit card
or auto loan ABS cannot be greater than five years.
Eligible ABS must be cleared through the Depository Trust Company
and, except for SBA Pool Certificates or Development Company
Participation Certificates, must be issued on or after January 1,
2009. All or substantially all of the credit exposures underlying
eligible auto loan ABS (except auto dealer floorplan ABS) must have
been originated on or after October 1, 2007. All or substantially all of
the credit exposures underlying eligible student loan ABS must have
had a first disbursement date on or after May 1, 2007. SBA Pool
Certificates and Development Company Participation Certificates must
have been issued on or after January 1, 2008, regardless of the dates
of the underlying loans or debentures. The SBA-guaranteed credit
exposures underlying all other eligible small business ABS must have
been originated on or after January 1, 2008. Eligible credit card and
auto dealer floorplan ABS must be issued to refinance existing credit
card and auto dealer floorplan ABS, respectively, maturing in 2009
and must be issued in amounts no greater than the amount of the
maturing ABS.
What level of assurance will be required from the sponsor’s
accountants that the ABS is TALF eligible?
An accounting firm retained by the sponsor shall provide a
certification, in a form acceptable to New York Fed, indicating that the
ABS is TALF eligible. The accounting firm must be a nationally
recognized certified public accounting firm that is registered with the
Public Company Accounting Oversight Board. An example of an
acceptable form can be obtained from New York Fed by e-mailing the
New York Fed Compliance Function at talf.compliance@ny.frb.org.  
What information must the issuer and sponsor include in the
prospectus or other offering document of an ABS in order to
represent that the ABS is eligible collateral for a TALF loan?
In addition to information required by applicable laws, the issuer and
sponsor must ensure that the information included in a prospectus or
other offering document of an ABS they represent as eligible
collateral under the TALF includes a signed certification (the form of
which will be available on the New York Fed TALF website) indicating,
among other items, that (a) the ABS is TALF eligible, (b) an
accounting firm retained by the sponsor has provided a certification,
in a form acceptable to the New York Fed, that the ABS is TALF
eligible, (c) the sponsor (or the relevant entity as specified in
forthcoming TALF certification documents) has agreed to comply with
the executive compensation requirements of the TALF and (d) the
issuer and sponsor have executed an undertaking to the New York
Fed indemnifying it from any losses it may suffer if such certifications
are untrue.
What types of receivables are TALF eligible?
Auto-related receivables will include retail loans and leases relating to
cars, light trucks, motorcycles and recreational vehicles (RVs), and
will also include auto dealer floorplan loans. Commercial, government
and rental fleet leases of cars, trucks and light trucks will not be
eligible.
For TALF purposes, eligible credit card receivables include both
consumer and corporate credit card receivables. Student loan
receivables include federally guaranteed student loans (including
consolidation loans) and private student loans. SBA loans include
loans, debentures, or pools originated under the SBA’s 7(a) and 504
programs, provided they are fully guaranteed as to principal and
interest by the full faith and credit of the U.S. government and meet
all other TALF eligibility requirements.
What does “all or substantially all” mean in the context of
determining whether the credit exposures underlying an ABS
meet the U.S.-domiciled obligors criteria?

“All or substantially all” in this context means 95 percent or more of
the dollar amount of the credit exposures underlying the ABS.
What does “all or substantially all” mean in the context of
determining whether the credit exposures underlying an ABS
meet the date of origination criteria?
“All or substantially all” in this context means 85 percent or more of
dollar amount of the credit exposures underlying the ABS.
Is there a minimum or maximum maturity limit for ABS that
can collateralize TALF loans?
There is no minimum limit. If an ABS’s maturity is shorter than the
3-year maturity of the TALF loan, the TALF loan will mature upon
maturity of the ABS collateral for that loan. The expected life for
credit card or auto loan ABS cannot be greater than five years.
What happens if an ABS that was eligible for TALF financing is
downgraded by an NRSRO?
Nothing happens to existing TALF loans secured by that ABS.
However, the ABS may not be used as collateral for any new TALF
loans until it regains its status as eligible collateral.
Why are there no loan origination date restrictions for credit
card and dealer floorplan ABS?
Unlike auto and student loan ABS, which are backed by a fixed pool
of loans, credit card and dealer floorplan ABS are backed by dynamic
pools of receivables that constantly change as customers and vehicle
dealerships draw on and repay their credit lines. The pools include
both seasoned and recently originated receivables. Due to the quick
turnover and revolving nature of the underlying pools, the refinancing
of existing credit card and dealer floorplan ABS largely fund newly
originated receivables, consistent with the policy goal of the TALF.
Are ABS that are rated in the highest investment grade rating
category but are on review or watch for downgrade TALF
eligible?
No, eligible ABS cannot be on review or watch for downgrade.
Are privately placed ABS eligible collateral for a TALF loan,
provided they meet all of the eligibility requirements?
Yes.
Are AAA credit ratings achieved using a third-party guarantee
applicable for TALF eligibility?
No, an eligible ABS must obtain the necessary highest investment
grade ratings without the benefit of a third-party guarantee.
Does the requirement that eligible auto dealer floorplan and
credit card ABS be issued to refinance existing ABS maturing
in 2009 apply at the individual master trust level or at the
issuer level?
The refinancing limitation applies at the issuer level rather than the
individual trust level. For example, if an issuer has four master trusts
with a total of $20 billion in ABS maturing in 2009, the maximum
amount of TALF-eligible ABS the issuer could issue in 2009 is $20
billion; it may issue that $20 billion in ABS from one trust or from
multiple trusts.
Are credit card ABS and auto dealer floorplan ABS that
amortize in 2009 due to triggers related to the asset-backed
commercial paper conduit that owns them included in the
calculation of ABS maturing in 2009?
Yes.
Must a credit card or auto dealer floorplan ABS issuer issue
eligible ABS concurrent with the maturation of the ABS the
eligible ABS is refinancing?
No. Issuers may pre-fund their maturing ABS with eligible ABS up to
three months in advance. Issuers also have the option to refinance
ABS that matured in 2009 in bulk on any date up to December 31,
2009.
How will the issuance limits on credit card ABS and dealer
floorplan ABS be enforced?
Issuers of credit card ABS and auto floorplan ABS must state in their
prospectuses that the aggregate amount of eligible ABS they have

issued does not exceed the amount of their 2009 ABS maturities.
Issuers may issue ABS in excess of their 2009 maturities; however,
these excess amounts will not be eligible collateral for TALF loans.
For ABS backed by SBA loans, are explicit credit ratings
required?
U.S. dollar-denominated cash ABS backed by loans, debentures, or
pools under the SBA’s 7(a) and 504 programs will be eligible as long
as all of the underlying credit exposures, or the ABS themselves, are
fully guaranteed as to principal and interest by the full faith and credit
of the U.S. government. These securities do not require an explicit
credit rating.
Can a company that originates loans securitize them, acquire
the AAA-rated tranche of the securitization, and finance it
using the TALF?
No, eligible collateral for a particular borrower must not be backed by
loans originated or securitized by the borrower or by an affiliate of
the borrower.
How is "affiliate of the borrower" defined for purposes of
determining eligible collateral?
An affiliate of a borrower means any company that controls, is
controlled by, or is under common control with the borrower. For this
purpose, a person or company controls a company if, among other
things, it (1) owns, controls, or holds with power to vote 25 percent
or more of a class of voting securities of the company; or (2)
consolidates the company for financial reporting purposes.
May investors borrow against ABS they already own?
Yes, an investor may borrow against any eligible ABS. Eligible ABS
must be issued on or after January 1, 2009, but need not be issued
on the same day the investor borrows from the TALF.
OPERATIONAL MECHANICS

How does an entity participate in the TALF program?
An eligible borrower must be a customer of a primary dealer and
must have executed a customer agreement authorizing the primary
dealer, among other things, to execute the master loan and security
agreement (MLSA) as agent for the borrower and to perform all
actions required on their behalf. The MLSA will provide further details
on the requirements that will apply to the entities seeking to borrow
from the New York Fed under the TALF.
What is the TALF process from subscription to settlement?
Prior to each subscription date, each primary dealer will collect from
prospective eligible borrowers the amount of each borrower’s loan
request, the interest rate format desired by the borrower (that is,
fixed or floating; borrowers may request one of each), the CUSIPs of
the ABS the borrower expects to deliver and pledge to the New York
Fed, and the prospectuses and/or offering documents of the ABS
expected to be pledged. On the subscription date each primary
dealer will submit this information to the New York Fed’s custodial
agent for review and will also submit to the New York Fed an
aggregate loan request amount for all its customers that seek a fixedrate TALF loan, and an aggregate loan request amount for all its
customers that seek a floating-rate TALF loan.
No fewer than two business days before the loan settlement date, the
custodian will send a confirmation to the primary dealer listing each
borrower’s loan amount and the ABS expected to be delivered on the
loan settlement date. The confirmation will also include the
administrative fee and margin (the dollar amount of the haircut), if
applicable, to be collected by the primary dealer and paid on the loan
settlement date.
On the loan settlement date, the borrower or its agent will deliver
against payment the ABS collateral, administrative fee and applicable
margin to the New York Fed’s settlement account at the custodian.
How will the process work if a new ABS issue closes on the
same day as the TALF loan settlement date?
The borrower must remit the margin to the New York Fed’s
settlement account at the custodian in order for the issuer to receive

the full purchase price of the purchase by the investor/borrower. If
the borrower is allocated less than expected of the new ABS issue,
the borrower must inform the New York Fed through its primary
dealer by a specified date so that an adjustment may be made to the
margin and administrative fee prior to the loan settlement date.
Must an eligible borrower own the ABS it plans to pledge as
collateral for a TALF loan at the time it subscribes for the
loan?
An eligible borrower need not own the ABS on the subscription date.
However, in order for the primary dealer and custodian to perform
their due diligence, the borrower must inform the primary dealer by
the subscription date of the CUSIP of the ABS it intends to deliver as
collateral on the loan settlement date.
Is there a penalty if an investor fails to provide a security on
settlement date?
No, although the New York Fed expects the ABS collateral identified
by CUSIP in the confirmation sent to the primary dealer by the
custodian to be delivered on the loan settlement date. Should any
portion of expected ABS collateral not be received on settlement
date, that portion of the loan will be cancelled and the administrative
fee will not be refunded.
When will the TALF become operational?
The initial TALF subscription date is expected to be announced in
February 2009, contingent on completion of the work necessary to
operationalize the TALF.
Over what time period will the TALF operate?
The facility will cease making loans on December 31, 2009, unless
the Board of Governors extends the facility.
Will there be a set schedule for TALF subscription and loan
settlement dates?
Yes, the New York Fed will publish a schedule of the monthly TALF
subscription and loan settlement dates. The initial TALF subscription
and loan settlement dates will be announced in February.
What will be the length of time between the announcement of
terms and subscription date?
To allow market participants sufficient time to prepare to participate
in the initial TALF loan subscription, the terms for the initial
subscription will be announced approximately two weeks before the
subscription date. The initial loan settlement date will occur
approximately two weeks after the initial subscription date. Based on
experience with the initial subscription, the Federal Reserve will
review the term announcement and loan settlement timeframes and
announce a more detailed future TALF schedule.
Will there be a limit on how often an eligible borrower can
borrow?
No, an eligible borrower may request loans at each monthly
subscription, although it will only be permitted one fixed rate and one
floating rate loan each month.
What is the minimum loan amount that can be requested by
an individual borrower?
A borrower must request a minimum of $10 million for each fixed and
floating rate loan.
Is there a maximum TALF loan amount?
No.
What is the maturity of a TALF loan?
TALF loans have a three-year maturity.
May a borrower pledge more than one security as collateral
for a single loan?
Yes, a borrower may pledge any combination of eligible ABS as
collateral for a single TALF loan. However, a fixed rate ABS must be
pledged against a fixed rate loan and a floating rate ABS against a
floating rate loan.
Will prepayment of the loan be permitted?
Yes. A borrower may prepay a TALF loan in full or in part at any

time. If a borrower makes a partial prepayment, collateral securing
its loan will be released on a pro-rata basis, taking into consideration
minimum ABS denominations.
Are there any penalties associated with prepayment of a TALF
loan?
No.
May a borrower substitute collateral during the term of its
loan?
No, collateral substitution is not permitted.
If the ABS collateral supporting a TALF loan is sold, can the
TALF loan be transferred with that collateral?
A borrower may assign all of its obligations with respect to a TALF
loan to another eligible borrower with the prior consent of the New
York Fed.
No assignments will be consented to after December 31, 2009, unless
it shall be determined, at the Federal Reserve’s sole discretion, that
unusual and exigent circumstances exist in the financial markets.
How are principal payments on eligible collateral allocated
between the borrower and repayment of principal on the TALF
loan?
Any remittance of principal on eligible collateral must be used
immediately to reduce the principal amount of the TALF loan in
proportion to the original loan-to-value ratio. For example, if the
original loan-to-value ratio was 90 percent, 90 percent of any
remittance of principal on the ABS must immediately be repaid to the
New York Fed.
What happens if a borrower does not repay its loan?
In the event a borrower fails to pay required principal or interest on
its TALF loan, the New York Fed will enforce its rights in the collateral.
Is there a grace period associated with a borrower’s
obligation to pay interest on a TALF loan?
Yes, a borrower has a grace period of 30 days during which to pay
interest on a TALF loan if the net interest on the pledged ABS is not
sufficient to cover the interest payment associated with the loan.
After the grace period, if the loan remains delinquent, the New York
Fed will enforce its rights to the TALF loan collateral.
When a borrower elects to surrender the collateral in
satisfaction of a loan, can it do so by surrendering specific
collateral or is the entire pool of collateral surrendered?
The entire pool of collateral must be surrendered. A borrower that
desires to effect a collateral surrender must make a request through
its primary dealer.
Will there be a separate facility for each ABS asset class?
No. Borrowers with eligible ABS of all asset types will receive loans
from the same facility.
What fees are associated with the TALF?
On each loan’s settlement date, the borrower must pay to the New
York Fed’s settlement account an administrative fee equal to 5 basis
points of the loan amount, which will cover the New York Fed’s fees
associated with the facility.
HAIRCUTS AND RATES

What is the initial haircut schedule for each asset type?
Under the TALF, the New York Fed will lend to each borrower an
amount equal to the value of the pledged ABS minus a haircut.
Preliminary collateral haircuts are as follows:
ABS Expected Life (years)
Sector

Subsector

0-1

Auto

Prime retail
lease

10% 11% 12% 13% 14%

Auto

Prime retail
loan

6%

1-2

7%

2-3

8%

3-4

4-5

9% 10%

5-6

6-7

Auto

Subprime retail
loan

9% 10% 11% 12% 13%

Auto

Floorplan

12% 13% 14% 15% 16%

Auto

RV/motorcycle

7%

8%

9% 10% 11%

Bank
Card

Prime

5%

5%

6%

7%

Bank
Card

Subprime

6%

7%

8%

9% 10%

Retail
Card

Prime

6%

7%

8%

9% 10%

Retail
Card

Subprime

7%

8%

9% 10% 11%

Student
Loan

Private

8%

9% 10% 11% 12% 13% 14%

Student
Loan

Gov’t
guaranteed

5%

5%

5%

Small
Business

SBA loans

5%

5%

5% 5%

6%

8%

7%

8%

9%

6%

7%

8%

For ABS with expected lives beyond seven years, haircuts will
increase by one percentage point for each additional year of expected
life beyond seven years.
Will the haircuts be the same for all borrowers for the same
assets?
Haircuts will vary across asset classes and securities’ expected lives,
but not across borrowers.
What spreads will be offered on the TALF loans on the first
subscription date?
Borrowers will be able to choose either a fixed or a floating rate on
each TALF loan. The interest rate on floating-rate loans will be 100
basis points over 1-month LIBOR. The interest rate on fixed-rate
loans will be 100 basis points over the 3-year LIBOR swap rate.
Interest rates will be set two days prior to each TALF loan settlement
date.
How are the interest rates on TALF loans determined?
The interest rates on TALF loans are set with a view to providing
borrowers an incentive to purchase newly issued eligible ABS at yield
spreads higher than in more normal market conditions but lower than
in the highly illiquid market conditions that have prevailed during the
recent credit market turmoil.
Will the interest rate spread and haircuts change from month
to month?
The Federal Reserve will periodically review and, if appropriate,
adjust the TALF interest rate spread and haircuts for new loans,
consistent with the policy objectives of the TALF.
OTHER

What is the primary dealer’s role?
The MLSA will specify a primary dealer’s roles and responsibilities,
including the agency functions to be performed on behalf of its
customers. Among other duties, the primary dealer shall:
Collect from its customers the amount of each borrower’s fixed
and/or floating rate loan request, the CUSIPs of the ABS the
borrower expects to deliver and pledge against the loan, and
the prospectuses and/or offering documents of the ABS
expected to be pledged;
Submit one aggregate loan request amount on behalf of its
customers for a fixed rate TALF loan, and another for a
floating rate TALF loan in the form and manner specified by
the New York Fed;
On the subscription date, submit a file to the custodian
containing a detailed breakdown of the loan requests which
will include the identity of the individual borrowers, the

amount of each borrower’s loan request, and the material
information collected above;  
Work with its customers to resolve any discrepancies identified
by the custodian;
Collect from its customers and deliver to the custodian the
administrative fee and any applicable margin required to be
delivered to the custodian on the loan settlement date;
Periodically receive from the custodian the portion of the
distributions on the collateral that are to be paid to its
customers and disburse such payments in accordance with the
instruction of its customers (i.e, borrowers) and provide any
applicable tax report to borrowers; and
Receive, or forward, notices on behalf of its customers.
In addition, a primary dealer will be required to apply its internal
customer identification program and due diligence procedures (“Know
Your Customer” program) to each borrower and represent that each
borrower is eligible. A primary dealer will be required to provide the
New York Fed with information sufficient to describe the dealer’s
customer risk assessment methodology. All primary dealers planning
to participate in the TALF must contact the New York Fed Compliance
Function at talf.compliance@ny.frb.org for further guidance.
How do sponsors comply with the executive compensation
requirements of the TALF?
In order for ABS to be eligible collateral for a TALF loan, the sponsor
of the securitization that issues the ABS (or the applicable entity
specified in forthcoming TALF certification documents) must be in
compliance with the executive compensation requirements of the
TALF. The chief executive officer (“CEO”) or other authorized
representative of the sponsor or other applicable entity must
complete the executive compensation certification form which will be
available on the New York Fed’s website and submit it to the New
York Fed before the sponsor or entity’s ABS can be offered as eligible
collateral.
In order to remain compliant with the executive compensation
requirements, each sponsor or applicable entity must certify
compliance on an annual basis. The annual certification process will
require the signature of the company's CEO or authorized
representative as well as the company's auditor.
If a sponsor or applicable entity fails to certify its compliance
annually, its securities will not be accepted as eligible collateral on
subsequent TALF subscription dates.
Will borrowers have to satisfy the executive compensation
requirements?
No.
What is the legal basis for the TALF?
The TALF is authorized under section 13(3) of the Federal Reserve
Act, which permits the Federal Reserve Board, in unusual and exigent
circumstances, to authorize Reserve Banks to extend credit to
individuals, partnerships, and corporations that are unable to obtain
adequate credit accommodations.
What is Treasury's role in the TALF?
The U.S. Treasury’s Troubled Assets Relief Program (TARP) will
purchase $20 billion of subordinated debt in an SPV created by the
New York Fed. The SPV will purchase and manage any assets
received by the New York Fed in connection with any TALF loans.
Residual returns from the SPV will be shared between the New York
Fed and the U.S. Treasury.
How will the Federal Reserve report lending under the TALF?
Balance sheet items related to the TALF will be reported on the H.4.1
weekly statistical release entitled “Factors Affecting Reserve Balances
of Depository Institutions and Condition Statement of Federal Reserve
Banks.” There will be an explanatory cover note on the release when
items are added.
What measures have been put in place to protect the TALF
against credit losses and fraud?
The Federal Reserve and the Treasury have structured the TALF to
minimize credit risk for the U.S. government to the maximum extent

possible, consistent with achieving the program’s purpose of
encouraging lending to consumers and small businesses. Examples
of the structural features of the TALF that minimize credit risk include
the following: (i) investors are required to supply risk capital in the
form of haircuts; (ii) the TALF haircut methodology is risk sensitive
across asset class and maturity; and (iii) the TALF only accepts
collateral that has received two credit ratings in the highest
investment-grade rating category or that is fully U.S. governmentguaranteed.
The New York Fed also has designed a number of measures to
discourage fraudulent activity associated with the TALF. The New
York Fed has established a compliance framework that includes a
borrower acceptance standard, an assurance program related to
borrower eligibility requirements, on-site inspection rights over
borrowers, and the right to reject a borrower for any reason. The
New York Fed has also retained the right to review all loan files held
by the custodian pertaining to each borrower. Furthermore, the New
York Fed is establishing a telephone and internet-based hotline for
reporting of fraudulent conduct or activity associated with the TALF.
In addition, an ABS issuer must provide a certification in connection
with the prospectus that the ABS is TALF eligible, that a nationally
recognized certified independent accounting firm has certified that the
ABS is TALF eligible, and that the issuer has not made any untrue
statements of material fact to an NRSRO to obtain the credit rating of
the ABS. If the collateral provided for a TALF loan or a borrower who
has participated in the program is found to be ineligible, the nonrecourse feature of the loan becomes inapplicable. If the collateral is
ineligible, the borrower must either replace the collateral with other
eligible collateral or repay the loan. If the borrower is ineligible, the
borrower must repay the loan. Moreover, as indicated above, to
assist the New York Fed in screening borrowers, primary dealers are
required to apply their internal customer identification program and
due diligence procedures to each borrower and escalate information
relating to those borrowers assessed as high risk to the New York
Fed.
Where should questions regarding the TALF be directed?
Questions should be directed to the New York Fed’s Public Affairs
department: 212-720-6130 or via email to TALF@ny.frb.org. An
investor call held on February 12, 2009 to address questions is
available on replay through February 26, 2009. To listen to this
replay, dial 1-800-475-6701 for U.S. callers or 1-320-365-3844 for
international callers. The access code for both U.S. and international
callers is 985211.
FAQs: February 6, 2009 ››
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