What Was the Consumer and Business Lending Initiative (CBLI)?

The Consumer and Business Lending Initiative (CBLI) was a plan initiated to aid in the government's goal of correcting the 2008 credit crisis. The aim was to unlock credit and kickstart the economy by encouraging the secondary lending markets to purchase assets backed by Small Business Administration (SBA) loans.

Key Takeaways

  • The Consumer and Business Lending Initiative (CBLI) sought to indirectly inject small businesses and consumers with credit following the 2008 financial crisis.
  • Up to $200 billion in investor financing was provided to purchase small businesses, commercial mortgage securitizations, and consumer loans.
  • It was hoped that the provision of low-cost financing would unfreeze securitization markets and expand access to credit for small business owners and consumers.
  • The CBLI was part of the Troubled Asset Relief Program (TARP) and a component of the Term Asset-Backed Securities Loan Facility (TALF).

Understanding the Consumer and Business Lending Initiative (CBLI)

The Consumer and Business Lending Initiative (CBLI) was part of the Troubled Asset Relief Program (TARP). TARP, which was signed into law in Oct. 2008 by President George W. Bush and managed by the U.S. Treasury, set out to stabilize the country's financial system, restore economic growth, and mitigate foreclosures in the wake of the Great Recession by purchasing troubled companies' assets and stock.

Amid this cleanup effort, the Consumer and Business Lending Initiative (CBLI) was presented with the task of boosting credit among struggling small business owners and consumers. Up to $200 billion in investor financing was unleashed to buy small businesses, commercial mortgage securitizations, and consumer loans. This was facilitated through the Term Asset-Backed Securities Loan Facility (TALF)—a program created by the U.S. Federal Reserve (Fed) in Nov. 2008 to boost consumer spending and jumpstart the economy through the issuance of asset-backed securities (ABSs) made up of auto, student, and credit card loans, etc., as well as loans guaranteed by the SBA.

Important: ABSs became an important means for financial institutions (FIs) to fund extra loans to businesses and households.

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, helping to further shore up these goals.

Benefits of the Consumer and Business Lending Initiative (CBLI)

The Consumer and Business Lending Initiative (CBLI) was an important measure by the Fed to protect secondary lending markets.

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. In other words, without the secondary markets, lending from commercial banks dries up.

Criticism of the Consumer and Business Lending Initiative (CBLI)

Despite its honorable intentions, the Consumer and Business Lending Initiative (CBLI) was not applauded by everyone. When TARP was wrapped up in 2013, the government claimed that it saved more than one million jobs, helped stabilize banks, and restored credit availability for individuals and businesses.

However, some economists, politicians, and financial professionals questioned whether the money could have been put to better use. There have been suggestions that the cash infusion that the Consumer and Business Lending Initiative (CBLI) provided to banks did not always feed through to small business owners and consumers, as promised.

Instead, the verdict in some quarters was that cheap financing mainly acted as a reward for bad behavior, propping up banks and benefiting Wall Street more than the general public.

History of the Consumer and Business Lending Initiative (CBLI)

The following principal activities occurred under the Consumer and Business Lending Initiative (CBLI):

  • Nov. 2008: TALF was announced
  • Feb. 10, 2009: The Fed, The Federal Reserve Bank of New York (FBRNY), and U.S. Treasury revealed 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 ABSs as floor plan loans, mortgage servicing advances, business equipment leases and loans, and vehicle fleet leases
  • May 1, 2009: The Fed announces that newly issued commercial mortgage-backed securities (CMBSs) and ABSs backed by insurance premium finance loans would be eligible collateral under the TALF.
  • May 19, 2009: The Fed includes high-quality, legacy CMBSs in the program
  • June 2, 2009: Loan requests under the Consumer and Business Lending Initiative (CBLI) reach their highest levels
  • Aug. 17, 2009: TALF is extended through June 2010
  • June 30, 2010: TALF is closed for new loan extensions