CCH Financial Reform News Center

Fed Announces Agreement with Treasury on Reduction of Credit Protection for TALF

This story appeared in Bank Digest.

The Federal Reserve Board has announced its agreement with the Treasury Department that it was appropriate for Treasury to reduce from $20 billion to $4.3 billion the credit protection provided for the Term Asset-Backed Securities Loan Facility (TALF) under the Troubled Asset Relief Program. The Fed had authorized up to $200 billion in TALF loans, but when the program closed on June 30, 2010, there were $43 billion in loans outstanding. To date, the TALF program has experienced no losses and all outstanding TALF loans are well collateralized. The Fed believes it is highly likely that the accumulated excess interest spread will cover any loan losses that may occur without recourse to the dedicated TARP funds.

Treasury Responds to GAO Assessment of TALF Risks to TARP

This story appeared in Bank Digest.

The Treasury Department has issued a Summary Response describing the actions it has taken to address the three recommendations in the General Accountability Office's February 2010 report titled “Treasury Needs to Strengthen Its Decision-Making Process on the Term Asset-Backed Securities Loan Facility.” The report assessed the risk posed by the Term Asset-Backed Securities Loan Facility (TALF) to the Troubled Asset Relief Program (TARP). The GAO report also examined the Treasury's role in decision making for TALF and the condition of securitization markets before and after TALF. The GAO recommended that the Treasury Department should: give increased attention to reviewing risks posed by CMBS; strengthen its TALF decision-making process; and determine which data are needed to track the management and sale of assets TALF borrowers might surrender. The Treasury response includes points of disagreement with certain GAO statements.

Automakers' Pension Obligations Studied

This story appeared in Bank Digest.

Following the commitment of $81 billion under the Troubled Asset Relief Program (TARP) to improve the domestic auto industry's competitiveness and long-term viability, the GAO has issued a report regarding pension obligations of General Motors and Chrysler. The report, which was issued as part of the GAO's oversight of TARP, examined the impact of restructuring on GM's and Chrysler's pension plans; the impact of restructuring on auto supply sector pension plans; and the impacts on Pension Benefit Guaranty Corporation (PBGC) and plan participants should auto industry pension plans be terminated. The report noted that across the auto sector as a whole, in January 2009, PBGC estimated that unfunded pension liabilities totaled about $77 billion, with PBGC's exposure for potential losses due to unfunded benefits of about $42 billion, leaving plan participants to bear the potential loss of the $35 billion difference through reduced benefits. The report also found that until the Treasury Department either sells or liquidates the equity it acquired in each of the automakers in exchange for the TARP assistance, its role as shareholder creates potential tensions with its role as pension regulator and overseer of PBGC in its role as pension insurer.

TARP Executive Compensation Rulings Issued

This story appeared in Bank Digest.

The Special Master for TARP Executive Compensation has issued an opinion that a subsidiary of American International Group will no longer be considered to be a TARP recipient after the subsidiary's sale to MetLife, Inc.

GAO Assesses TALF Risks to TARP

This story appeared in Bank Digest.

The Government Accountability Office has issued a report assessing the risk posed by the Term Asset-Backed Securities Loan Facility (TALF) to the Troubled Asset Relief Program (TARP). TALF was created by the Federal Reserve Board to help meet consumer and small business credit needs by supporting issuance of asset-backed securities and commercial mortgage backed securities (CMBS). The GAO report also examines the Treasury Department’s role in decision making for TALF and the condition of securitization markets before and after TALF.

Treasury Department Extending TARP to October 2010

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Treasury Secretary Timothy Geithner, in a letter to Congressional leadership, said the administration plans to extend the Troubled Asset Relief Program (TARP) to Oct. 3, 2010, in order to continue to implement programs to address housing markets and small business needs, and to be able to respond to unforeseen threats.

“The recovery of our financial system remains incomplete…near-term shocks to that system could undermine the economic recovery we have seen to date,” the secretary wrote.

Credit Rating Agency Eligibility Process for TALF Adopted

This story appeared in Bank Digest.

The Federal Reserve Board has adopted a final rule that would establish a process by which the Federal Reserve Bank of New York may determine the eligibility of credit rating agencies for the Term Asset-Backed Securities Loan Facility (TALF). The rule establishes criteria for determining the eligibility of agencies to issue credit ratings on asset-backed securities (ABS), other than those backed by commercial real estate, to be accepted as collateral for the TALF. The criteria include registration as a nationally recognized statistical rating organization with the Securities and Exchange Commission and experience issuing credit ratings specific to the types of assets accepted as collateral in the TALF. The final rule is substantively the same as the proposed rule announced on Oct. 5, 2009. The Fed has also issued TALF Frequently Asked Questions.

Grassley Holds Treasury Accountable for Safeguarding Bailout Funds

This story appeared in Bank Digest.

Sen. Chuck Grassley, R-Iowa, ranking member of Senate Finance, has asked Treasury Secretary Tim Geithner to account for the Treasury Department not implementing numerous recommendations to safeguard tax dollars dedicated to the Term Asset-Backed Securities Loan Facility (TALF) program. Grassley said the outstanding recommendations were detailed in the recent quarterly report to Congress made by the Special Inspector General for the Troubled Asset Relief Program. “After a little over a year, it’s pretty clear that neither the former nor the current Treasury Department has made it a priority to facilitate transparency and the accountability it helps to brings about when it comes to the massive taxpayer-sponsored bailout programs,” Grassley said. “It should be the other way around, with the Treasury Department acting as a pro-active trustee of these tax  dollars.”

http://finance.senate.gov/press/Gpress/2009/prg111309.pdf

Fed Proposes Changes to Valuation of TALF Collateral

This story appeared in Bank Digest.

The Fed has announced two changes to the procedures for evaluating asset-backed securities (ABS) pledged to the Term Asset-Backed Securities Loan Facility (TALF). First, it has proposed a rule that would establish criteria for the Federal Reserve Bank of New York(FRBNY) to determine the Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings are accepted for determining the eligibility of ABS to be pledged as collateral at the TALF. According to the Fed, the proposed rule, which would require a certain minimum level of experience in rating deals of any particular type, would likely result in an expansion of TALF-eligible NRSROs for ABS. It is intended to promote competition among NRSROs and ensure appropriate protection against credit risk for the U.S. taxpayer.

Bernanke Discusses Diversity Efforts

This story appeared in Bank Digest.

Appearing before the Congressional Black Caucus Foundation’s Annual Legislative Conference in Washington, D.C., Federal Reserve Board Chairman Ben S. Bernanke noted, “The Federal Reserve System remains committed to diversity and inclusion in our programs and  activities.” The Fed Chairman then cited specific examples regarding the Fed’s efforts to seek diversity in its programs, especially the Term Asset-Backed Securities Loan Facility, or TALF.

http://www.federalreserve.gov/newsevents/speech/bernanke20090925a.htm