Michael Pedroni, EVP and Managing Director of International Affairs at MFA, explains the Term Asset Backed Securities Lending Facility (TALF), a Federal Reserve program that supports lending to individuals and small businesses. He describes how TALF creates a ‘triple win’ for American businesses and individuals, professional investors and pension funds, and taxpayers. The presentation covers how the asset backed securities (ABS) market works, where banks bundle loans like car loans or student loans into securities that are sold to professional investors.
Key takeaways:
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Diversifying funding through the TAF helps restart and sustain the asset‑backed securities (ABS) market, allowing banks to bundle and sell loans such as car and student loans to investors.
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By encouraging lenders to issue and sell these loan bundles, the program supports continued access to credit for individuals and small businesses.
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This structure creates a “triple win” through boosting borrowing opportunities for consumers, enabling investment activity in financial markets, and ultimately supporting broader economic stability.
Transcript:
Today, I’m here to talk to you about the TAUF, the Term Asset Backed Securities Lending Facility.
It’s a mouthful of an acronym, but it is one of those rare finds in the financial policy world. It’s a triple win. Who wins from the TAF? American businesses and individuals, professional investors and pension funds, and lastly, the taxpayer. And to understand how that is, let me just take a step back and explain how the TAF functions.
The TAF is designed by the Federal Reserve to support lending to individuals and small businesses for the purchase of cars, business overhead loans, or for students who need to pay for college.
One of the ways in which banks and other lenders provide financing for these activities is through what we call the asset backed securities market.
So the asset backed securities market, ABS, allows banks to bundle together a lot of, for example, car loans or student loans into a single security and then sell pieces of that bundled security to professional investors.
So that’s the ABS market and it’s really the first reason why we say the TALF provides a win because it provides really strong incentives to lenders to jumpstart this market so that people can continue to get their car loans or their student loans.
And we know it works because we had a TALF in two thousand and nine and I was at Treasury at the time and I watched as this market for ABS went from being completely closed to coming back to life largely because of the health.
