March 3, 2009

Government moves to thaw lending freeze

The Obama administration announced the launch of a program to support purchases of AAA-rated securities, the government called critical to U.S. lending.

These markets have historically been a critical component of lending in our financial system, the U.S. Treasury and Federal Reserve said in a joint statement.

The Term Asset-Backed Securities Loan Facility will operate as a component of the Consumer and Business Lending Initiative and has the potential to generate up to $1 trillion of lending for businesses and households, the joint statement said.

Federal Reserve Chairman Ben Bernanke has said the securitization market, which involves transactions of bundled loans, is in a deep freeze. The new program, which starts March 17, is designed to break the ice by lending up to $200 billion to investors in securities backed by recent auto loans, credit card loans student loans, and SBA-guaranteed small business loans, through the Federal Reserve Bank of New York, the government said.

Those new securitizations will be funded by the program, creating new lending capacity for additional future loans, the statement said.