What Is the Consumer and Business Lending Initiative (CBLI)?
The Consumer and Business Lending Initiative (CBLI) was a federal program that aimed to resolve the 2008 credit crisis and restore confidence in the economy through the government purchase of a massive amount of private debt. 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.
Managed by the U.S. Treasury, the Troubled Asset Relief Program (TARP) was intended to stabilize the country's financial system, restore economic growth, and reduce the number of home foreclosures by purchasing massive amounts of the troubled assets and stock shares of companies that had been caught in the collapse of the housing market.
- The Consumer and Business Lending Initiative (CBLI) sought to indirectly inject credit into small businesses and consumers by shoring up the institutions that offer that credit.
- Up to $200 billion in investor financing was provided to purchase small business loans, commercial mortgage securitizations, and consumer loans.
- It was hoped that this flow of money would unfreeze loan markets and expand access to credit for small business owners and consumers.
- The CBLI was part of the Troubled Asset Relief Program (TARP).
Understanding the Consumer and Business Lending Initiative (CBLI)
As part of this larger cleanup effort, the Consumer and Business Lending Initiative (CBLI) was given the task of strengthening the markets for credit that were available to small business owners and consumers. Up to $200 billion in financing was made available to buy small business loans, 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 November 2008 to boost consumer spending and jumpstart the economy by issuing asset-backed securities (ABSs) made up of auto, student, and credit card loans as well as loans guaranteed by the SBA.
It was hoped that providing 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)
Backers of the CBLI argued that a major initiative by the Fed was needed to protect the secondary lending markets.
Important: ABSs became an important means for financial institutions (FIs) to fund extra loans to businesses and households.
In modern banking, the process works like this: Commercial banks market mortgages and other loans directly to consumers and small businesses. The banks then combine a number of these loans into batches that are sold to the secondary markets for purchase by investors in debt. The banks then have the bulk of the money they loaned out (minus the discount paid by the secondary market purchaser) to make another round of loans to consumers.
The Consumer and Business Lending Initiative (CBLI) was part of the Troubled Asset Relief Program (TARP), which was signed into law in October 2008 by President George W. Bush. All of these programs were part of the federal government's efforts to alleviate the effects of the Great Recession that followed the collapse of the housing market.
Without an effective secondary lending market, proponents of CBLI said, the flow of money to consumers dries up.
Criticism of the Consumer and Business Lending Initiative (CBLI)
Despite its honorable intentions, the CBLI was not applauded by everyone. When TARP was wrapped up in 2013, the government claimed that it had 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 CBLI provided to banks did not always flow through to small business owners and consumers, as promised. Rather, the banks used the flood of cash for short-term lending rather than risking it on consumer and small business loans.
Timeline of the Consumer and Business Lending Initiative (CBLI)
The following were the principal events that occurred under the CBLI:
- November 2008: TALF is announced
- Feb. 10, 2009: The Fed, The Federal Reserve Bank of New York (FRBNY), and the U.S. Treasury reveal that TALF might be greatly 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 CBLI reach their peak levels
- Aug. 17, 2009: TALF is extended through June 2010
- June 30, 2010: TALF is closed for new loan extensions
According to the U.S. Treasury, the TARP programs as a whole brought in more than $7.9 billion than was spent.