What is the Consumer And Business Lending Initiative
The Consumer and Business Lending Initiative was a plan initiated to aid in the government's goal of correcting the 2008 credit crisis by working on the secondary lending markets to purchase assets backed by Small Business Administration (SBA) loans. Execution of the plan meant extensive lending and reorganization of Term Asset-Backed Securities Loan Facility (TALF). The Consumer and Business Lending Initiative was part of the Troubled Asset Relief Program (TARP), which was signed into law in October 2008 by President George W. Bush.
BREAKING DOWN Consumer And Business Lending Initiative
Without an effective secondary lending market, a large strain is placed on the major commercial banks, as the two lending mediums work hand in hand. Banks often combine their loans and sell them to the secondary markets, which keeps money flowing freely in the banks, allowing them to continue to distribute both personal and business loans. Therefore, without the secondary markets, the lending from commercial banks dries up. The Consumer and Business Lending Initiative was an important measure by the Federal Reserve to protect secondary lending markets.
Goals of the Consumer and Business Lending Initiative
In November 2008, the Federal Reserve announced the formation of TALF, a credit facility operated by the Federal Reserve Bank of New York and backed by $20 billion in Treasury funds under the TARP. The Consumer and Business Lending Initiative aimed to provide up to $200 billion in investor financing to buy small business, commercial mortgage securitizations and consumer loans. It was hoped that the provision of low-cost financing for investors would unfreeze securitization markets and expand access to credit for small business owners and consumers. The initiative also provided for the Treasury purchase of SBA-backed 504 and 7(a) loans in order to shore up small
business credit markets and boost securitization of those markets.
Timeline of Activities Under the Consumer and Business Lending Initiative
The following principal activities occurred under the Consumer and Business Lending Initiative:
- November 2008: TALF was announced
- Feb. 10, 2009: The Federal Reserve, FBRNY, and U.S. Treasury announce that the size of TALF might be expanded from $200 billion to $1 trillion
- March 3, 2009: TALF is launched
- March 19, 2009: Agencies expand the eligible collateral for the program to include such asset-backed securities (ABS) as floorplan loans, mortgage servicing advances, business equipment leases and loans, and vehicle fleet leases
- May 1, 2009: The Federal Reserve announces that newly issued commercial mortgage-backed securities (CMBS) and ABS backed by insurance premium finance loans
- May 19, 2009: The Federal Reserve includes high-quality, legacy CMBS in the program
- June 2, 2009: Loan requests under the Consumer and Business Lending Initiative reach their highest levels
- Aug. 17, 2009: TALF is extended through June 2010