Issuance Of Asset-Backed Securities Is Slowly Returning
The Federal Reserve recently announced that it would extend it’s Term Asset-Backed Securities Loan Facility(TALF) until March of 2010 and chances are they could extended it again next spring. The Fed created the program to promote borrowing and lending in the asset-backed securities(ABS) market which froze up during the financial crisis.
Bank lending is still down overall, as can be seen with the excess amount of bank reserves the Fed is currently holding on deposit. The ABS market is essential in helping banks rollover existing loans in order to facilitate new lending.
New issuance of ABS has slowly started to return but investors still remain skeptical, especially for securities backed by real estate loans, which is still experiencing a high degree of defaults. That being said, the TALF has still had a positive impact as investors are increasingly starting to use their own cash to re-enter the market.
The market still has a ways to go to return to it’s former level, which may be impossible as financial institutions aren’t likely to return to their former leverage levels anytime soon. The whole market is just too risk adverse at the moment, the Fed needs both issuers and investors to increase their risk seeking in order for credit to flow more freely.
As economic conditions start to improve we will likely see lending activity increase but it will probably be slow going for some time.
