![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Talf requests plunge $3bn to $1.7bn in latest funding round
Demand for loans under the US Treasury's Term Asset-Backed Securities Loan Facility (Talf) has dropped precipitously since the scheme opened in March.
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.
See also: Questions raised over US scheme to buy toxic assets
Time for Talf
Treasury launches Talf, drops compensation caps
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Structured products
A guide to home equity investments: the untapped real estate asset class
This report covers the investment opportunity in untapped home equity and the growth of HEIs, and outlines why the current macroeconomic environment presents a unique inflection point for credit-oriented investors to invest in HEIs
Podcast: Claudio Albanese on how bad models survive
Darwin’s theory of natural selection could help quants detect flawed models and strategies
Range accruals under spotlight as Taiwan prepares for FRTB
Taiwanese banks review viability of products offering options on long-dated rates
Structured products gain favour among Chinese enterprises
The Chinese government’s flagship national strategy for the advancement of regional connectivity – the Belt and Road Initiative – continues to encourage the outward expansion of Chinese state-owned enterprises (SOEs). Here, Guotai Junan International…
Structured notes – Transforming risk into opportunities
Global markets have experienced a period of extreme volatility in response to acute concerns over the economic impact of the Covid‑19 pandemic. Numerix explores what this means for traders, issuers, risk managers and investors as the structured products…
Structured products – Transforming risk into opportunities
The structured product market is one of the most dynamic and complex of all, offering a multitude of benefits to investors. But increased regulation, intense competition and heightened volatility have become the new normal in financial markets, creating…
Increased adoption and innovation are driving the structured products market
To help better understand the challenges and opportunities a range of firms face when operating in this business, the current trends and future of structured products, and how the digital evolution is impacting the market, Numerix’s Ilja Faerman, senior…
Structured products – The ART of risk transfer
Exploring the risk thrown up by autocallables has created a new family of structured products, offering diversification to investors while allowing their manufacturers room to extend their portfolios, writes Manvir Nijhar, co-head of equities and equity…