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Report Pursuant to Section 129 of the
Emergency Economic Stabilization Act of 2008:
Term Asset-Backed Securities Loan Facility
On November 24, 2008, the Board of Governors of the Federal Reserve
System (Board), by the unanimous vote of its five members, approved under
section 13(3) of the Federal Reserve Act (12 U.S.C. ยง 343) the establishment of the
Term Asset-Backed Securities Loan Facility (TALF). The TALF is intended to
assist the financial markets in accommodating the credit needs of consumers and
small businesses by facilitating the issuance of asset-backed securities (ABS) and
improving the market conditions for ABS more generally.
Background and Details on the TALF
Background. New issuance of ABS declined precipitously in the third
quarter of 2008 and came to a halt in October 2008. At the same time, interest rate
spreads on AAA-rated tranches of ABS soared 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 of small
business loans guaranteed by the Small Business Administration (SBA).
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. These disruptions, when combined with the
ongoing stresses in other parts of the credit markets, present significant risks to
financial stability and economic conditions in the United States.
In light of the foregoing, the Board determined that unusual and exigent
circumstances existed that warranted approval of the TALF. The TALF is
designed to support the issuance of ABS collateralized by student loans, auto
loans, credit card loans, and SBA-guaranteed small business loans at more normal
interest rate spreads. In so doing, the TALF should increase credit availability for
consumers and small businesses and support economic activity.
Structure and Basic Terms. The following provides an overview of the
terms and conditions that are expected to govern the TALF at this time. The Board
and the Federal Reserve Bank of New York (Reserve Bank) continue to monitor

the ABS markets and to consult with market participants and, accordingly, the
terms and conditions governing the facility may be modified in the future. The
Board expects that the TALF will be operational in February 2009.
The Reserve Bank will make up to $200 billion of loans under the TALF.
TALF loans will have a one-year term (with interest payable monthly), will be
folly secured by the market value of high-quality ABS (subject to a collateral
haircut), and will be non-recourse to the borrower. The term of TALF loans may
be lengthened later if appropriate. Substitution of collateral during the term of the
loan will not be allowed. TALF loans will not be subject to ongoing mark-tomarket or re-margining requirements.
The U.S. Treasury Department - under the Troubled Assets Relief Program
(TARP) of the Emergency Economic Stabilization Act of 2008 - will provide
$20 billion of credit protection to the Reserve Bank in connection with the TALF,
as described below,
Eligible Collateral. Eligible collateral will include U.S. dollar-denominated
ABS that have a long-term credit rating in the highest investment-grade rating
category (for example, AAA) from two or more major nationally recognized
statistical rating organizations (NRSROs) and do not have a long-term credit rating
of below the highest investment-grade rating category from a major NRSRO.
All or substantially all of the credit exposures underlying eligible ABS must
be newly or recently originated exposures to U.S.-domiciled obligors. The
underlying credit exposures of eligible ABS initially must be auto loans, student
loans, credit card loans, or SBA-guaranteed small business loans. The underlying
credit exposures must not include exposures that are themselves ABS.
Originators of the credit exposures underlying eligible ABS (or, in the case
of SBA-guaranteed loans, the ABS sponsor) must agree to comply with, or already
be subject to, the executive compensation requirements in section 111(b) of the
Emergency Economic Stabilization Act of 2008.
This eligible collateral framework is designed to best stimulate new
consumer and small business lending while minimizing risk to the Federal Reserve
and the U.S. Treasury Department.

Collateral Haircuts. Collateral haircuts will be established by the Reserve
Bank for each class of eligible collateral. Haircuts will be determined based on the
price volatility of each class of eligible collateral.
Eligible Borrowers. All U.S. persons that own eligible collateral may
participate in the TALF. A U.S. person is a natural person that is a U.S. citizen, a
company that is organized under the laws of the United States or a political
subdivision or territory thereof (including such an entity that has a non-U.S. parent
company), or a U.S. branch or agency of a foreign bank.
Maximum Size of the TALF. The Board has authorized the Reserve Bank
to make up to $200 billion in loans under the TALF.
Pricing and Allocation of Federal Reserve Lending. The Reserve Bank
will offer a fixed amount of loans under the TALF on a monthly basis. TALF
loans will be awarded to borrowers each month based on a competitive, sealed bid
auction process. Each bid must include a desired amount of credit and an interest
rate spread over the one-year overnight index swap (OIS) rate. The Reserve Bank
will set minimum spreads for each auction.
The Reserve Bank will reserve the right to reject or declare ineligible any
bid, in whole or in part, at its discretion. In this regard, the Reserve Bank will
develop and implement procedures to identify for further scrutiny potentially highrisk ABS that a borrower proposes to pledge under the TALF.
The Reserve Bank will assess a non-recourse loan fee at the inception of
each loan transaction.
Role of the U.S. Treasury Department. The Reserve Bank will create a
special purpose vehicle (SPV) to purchase and manage any assets acquired by the
Reserve Bank in connection with default on any TALF loans. The Reserve Bank
will enter into a forward purchase agreement with the SPV under which the SPV
will commit, for a fee, to purchase - at a price equal to the TALF loan amount plus
accrued but unpaid interest - all assets securing a TALF loan that are acquired by
the Reserve Bank. The U.S. Treasury Department's TARP will purchase up to
$20 billion of subordinated debt issued by the SPV. The Reserve Bank will lend
additional funds to the SPV as necessary to finance additional asset purchases, up
to a maximum amount of $180 billion. The Reserve Bank's loan to the SPV will
be senior to the TARP subordinated debt, with recourse to the SPV, and secured by
all the assets of the SPV. All cash flows from SPV assets will be used first to

repay principal and interest on the Reserve Bank senior loan until the loan is repaid
in foil. Next, cash flows from assets will be used to repay principal and interest on
the TARP subordinated debt until the debt is repaid in fall. Residual returns from
the SPV will be shared between the Reserve Bank and the U.S. Treasury
Department. The interest rates on the U.S. Treasury Department's subordinated
debt in the SPV and any Federal Reserve loan to the SPV have not yet been
Executive Compensation Requirements. Originators of the credit
exposures underlying eligible ABS (or, in the case of SBA-guaranteed loans, the
ABS sponsor) must agree to comply with, or already be subject to, executive
compensation standards consistent with the U.S. Treasury Department's TARP
guidelines applicable to its Capital Purchase Program.
Security for Federal Reserve Loans. The Reserve Bank loans under the
TALF will be folly collateralized at inception by eligible ABS. As noted above,
these ABS will be high-credit-quality debt instruments that are externally rated in
the highest rating category by multiple NRSROs. In addition, as noted above, the
Reserve Bank will employ substantial haircuts and screens to ensure that the
Federal Reserve and the taxpayer are protected from a decline in the value of the
ABS collateral during the term of a loan. Moreover, as noted above, the U.S.
Treasury Department's TARP has agreed to absorb at least the first ten percent of
any losses incurred by the Federal Reserve in connection with the program.
Termination Date. The Reserve Bank will cease making new loans under
the TALF on December 31, 2009, unless the Board agrees to extend the facility.
TALF loans that are outstanding on the facility termination date will remain
outstanding until maturity.
Expected Costs. In light of the high-credit-quality ABS collateral that will
secure Reserve Bank lending under the TALF, the collateral haircuts and screens
that will be employed by the Reserve Bank in connection with TALF lending, and
the $20 billion program-wide credit protection provided by the U.S. Treasury
Department to support TALF lending, the Board does not expect at this time that
extensions of credit under the TALF will result in any losses to the Federal
Reserve or the taxpayer.