Board of Governors of the Federal Reserve System

March 2011

Securitization Markets and Central Banking: An Evaluation of the Term Asset-Backed Securities Loan Facility

Sean Campbell, Daniel Covitz, William Nelson, and Karen Pence

Abstract:

In response to the near collapse of US securitization markets in 2008, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, which offered non-recourse loans to finance investors' purchases of certain highly rated asset-backed securities. We study the effects of this program and find that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities. These findings suggest that the program improved conditions in securitization markets but did not subsidize individual securities. We also find that the risk of loss to the US government was small.

Keywords: Securitization, financial crisis, monetary policy, discount window, lender of last resort

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