Quarterly Report on Federal Reserve
Balance Sheet Developments

Special Lending Facilities

During the financial crisis, the Federal Reserve created a number of special lending facilities to stabilize the financial system and support economic activity. Some of these facilities provided liquidity to borrowers and investors in important financial markets. These facilities were closed by 2010; however, some loans made under the Term Asset-Backed Securities Loan Facility (TALF), which is closed to new lending, remain outstanding and will mature by the end of October 2014.⁶

Other programs supported certain specific institutions in order to avert disorderly failures that could have resulted in severe dislocations and strains for the financial system as a whole and harmed the U.S. economy. While the loans made by the Federal Reserve under these programs have been repaid, the Federal Reserve will continue to receive cash flows generated from assets remaining in the portfolios established in connection with such support, principally that of Maiden Lane LLC.

Term Asset-Backed Securities Loan Facility

Recent Developments

• As of July 30, 2014, less than $50 million in TALF loans remained outstanding. TALF LLC, a limited liability company formed to purchase and manage assets received by the FRBNY from the TALF program, remains in operation, but as of July 30, 2014, TALF LLC had purchased no assets from the FRBNY.
• Due to recent repayments in full of certain loans, no TALF loans will remain outstanding after October 29, 2014.

Background

On November 25, 2008, the Federal Reserve announced the creation of the TALF under the authority of Section 13(3) of the Federal Reserve Act. The TALF is a funding facility under which the FRBNY was authorized to extend up to $200 billion of credit to holders of eligible asset-backed securities (ABS).⁷ The TALF was intended to assist financial markets in accommodating the credit needs of consumers and businesses of all sizes by facilitating the issuance of ABS collateralized by a variety of consumer and business loans; it was also intended to improve market conditions for ABS more generally. TALF loans backed by CMBS or by ABS backed by government guaranteed loans have maturities of up to five years; all other TALF loans had three-year maturities. Using funds authorized under the Troubled Asset Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008, the Treasury committed to provide $20 billion in credit protection to the FRBNY in connection with the TALF to support the $200 billion of authorized lending value under the program. This commitment was reduced to $4.3 billion in July 2010 to reflect the fact that only $43 billion of TALF loans were outstanding when the program was closed to new lending, and was further reduced to $1.4 billion in June 2012 to reflect the amount of loans that remained outstanding at that time as the program wound down. In January 2013, the commitment was eliminated because the accumulated fees and income collected through the TALF and held by TALF LLC exceeded the remaining amount of TALF loans outstanding, and the credit protection from the Treasury was no longer deemed necessary. The TALF remains a joint Treasury-Federal Reserve program, and the Treasury and Federal Reserve will continue to consult on the administration of the program.

Table 8. TALF: Number of borrowers and loans outstanding
As of July 30, 2014

Lending program	Number of borrowers	Borrowing ($ billions) 1
Non-CMBS	0	0
CMBS	2	*
Total	2	*

 Note: Unaudited. "Number of borrowers" may exceed total because borrowers may be included in more than one category. "Borrowing" amounts may not sum to total because of rounding.

 *Less than $50 million.

1. Book value. Return to table

The Federal Reserve closed the TALF for new loan extensions against newly issued CMBS on June 30, 2010, and for new loans against all other types of collateral on March 31, 2010. All TALF loans were extended by the FRBNY. All three-year TALF loans have matured, and the remaining five-year TALF loans will mature no later than October 29, 2014.

Eligible collateral for TALF loans included U.S. dollar-denominated ABS backed by student loans, auto loans, credit card loans, equipment loans, floorplan loans, insurance premium finance loans, loans guaranteed by the Small Business Administration (SBA), residential mortgage servicing advances, or commercial mortgages. Only ABS backed by student loans, SBA-guaranteed loans, and commercial mortgages were eligible collateral for five-year TALF loans. At the time a TALF loan was extended, all eligible collateral was required to have a credit rating in the highest investment-grade rating category from two or more eligible nationally recognized statistical rating organizations (NRSROs) and could not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. Certain collateral also had to pass an internal risk assessment by the FRBNY.

Additionally, all or substantially all of the credit exposures underlying eligible ABS were required to be exposures to U.S.-domiciled obligors or with respect to real property located in the United States or its territories. Except for ABS for which the underlying credit exposures are SBA-guaranteed loans, eligible newly issued ABS must have been issued on or after January 1, 2009. Eligible legacy CMBS must have been issued before January 1, 2009, must be senior in payment priority to all other interests in the underlying pool of commercial mortgages, and must meet certain other criteria designed to protect the Federal Reserve and the Treasury from credit risk. Collateral would not be accepted from a particular borrower if the collateral was backed by loans originated or securitized by that borrower or its affiliate except in very limited circumstances.

The loans provided through the TALF were designed to be limited in recourse to the collateral, generally allowing borrowers the option of surrendering the collateral to the FRBNY in full satisfaction of the TALF loan. The FRBNY's loan is secured by the ABS collateral, with the FRBNY lending an amount equal to the market value of the ABS, less a haircut. The haircut is a buffer that protects the FRBNY against a decline in the collateral's value. The Federal Reserve set initial haircuts for each type of eligible collateral to reflect an assessment of the risk and maturity of the various types of eligible ABS. Breakdowns of TALF collateral by underlying loan type and credit rating are presented in tables 9 and 10, respectively.

Table 9. TALF collateral by underlying loan type
Billions of dollars, as of July 30, 2014

Type of collateral	Value
By underlying loan type
Commercial mortgages	*
Newly issued	0
Legacy	*
Small business	0
Student loan	0
Total	*

 Note: Unaudited. Components may not sum to total because of rounding. Data represent the face value of collateral.

 *Less than $50 million.

Table 10. TALF collateral by rating
Billions of dollars, as of July 30, 2014

Type of collateral	Value
Asset-backed securities with minimum rating of: 1
AAA/Aaa	*
Total	*

 Note: Unaudited. Data represent the face value of collateral.

 *Less than $50 million.

1. Eligible ABS collateral for the TALF was required to have a credit rating in the highest investment-grade rating category from at least two eligible NRSROs and could not have a credit rating below the highest investment-grade rating category from an eligible NRSRO. When pledged collateral is downgraded below the highest investment-grade rating, existing loans against the collateral remain outstanding. Return to table

TALF LLC

TALF LLC was formed to purchase and manage any ABS that might be surrendered by a TALF borrower or otherwise claimed by the FRBNY in connection with its enforcement rights to the TALF collateral. In certain limited circumstances, TALF LLC may also purchase TALF program loans from the FRBNY. TALF LLC has committed to purchase, for a fee, all such assets at a price equal to the TALF loan, plus accrued but unpaid interest.⁸

Purchases of these securities are funded through the fees received by TALF LLC and any interest TALF LLC has earned on its investments. Prior to January 15, 2013, in the event that such funding had proven insufficient, the TARP and the FRBNY would have provided additional funding to TALF LLC to finance additional asset purchases; however, the accumulated fees and income collected through TALF and held by TALF LLC now exceed the remaining amount of TALF loans outstanding, and such credit protection is no longer deemed necessary. In addition, TALF LLC has repaid in full the outstanding principal and accrued interest on subordinated funding previously provided by the Treasury. The Federal Reserve Board has also authorized TALF LLC to begin distributions from the accumulated fees and income earned by TALF LLC since inception to the Treasury and the FRBNY in the amount by which such accumulated fees and income exceeds the current outstanding TALF loan balance plus funds reserved for future expenses of TALF LLC. The Treasury receives 90 percent of the distributions, and the FRBNY receives 10 percent.⁹ Financial information on TALF LLC is reported weekly in tables 1, 2, 7, 8, and 9 of the H.4.1 statistical release.

Table 11. Issuers of CMBS that collateralize outstanding TALF loans
As of July 30, 2014

Issuers
Banc of America Commercial Mortgage Trust 2006-1
Bear Stearns Commercial Mortgage Securities Trust 2005-PWR10

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Maiden Lane LLC

Recent Developments

• Assets remaining in the Maiden Lane LLC portfolio will be sold as market conditions warrant and if the sales represent good value for the public. In accordance with the Maiden Lane LLC agreements, the FRBNY will receive all future cash flows generated from these asset sales. As of July 30, 2014, net portfolio holdings of Maiden Lane LLC were valued at $1.7 billion. Additional information on the holdings of Maiden Lane LLC is available at www.newyorkfed.org/markets/maidenlane.html  .

Background

In March 2008, the FRBNY and JPMorgan Chase & Co. (JPMC) entered into an arrangement related to financing provided by the FRBNY to facilitate JPMC's acquisition of The Bear Stearns Companies, Inc. (Bear Stearns). In connection with the transaction, the Federal Reserve Board authorized the FRBNY, under Section 13(3) of the Federal Reserve Act, to extend credit to a Delaware limited liability company, Maiden Lane LLC, to partially fund the purchase of a portfolio of mortgage-related securities, residential and commercial mortgage loans, and associated hedges from Bear Stearns. In the second quarter of 2008, the FRBNY lent approximately $28.2 billion to Maiden Lane LLC. In addition, JPMC made a subordinated loan to Maiden Lane LLC that was available to absorb first any losses that may have been realized.

On June 14, 2012, the FRBNY announced that its loan to Maiden Lane LLC had been repaid in full, with interest. This repayment marked the retirement of the remaining debt owed to the FRBNY from the crisis-era intervention with Bear Stearns. On November 15, 2012, the FRBNY announced that net proceeds from additional sales of securities in Maiden Lane LLC enabled the full repayment of the subordinated loan made by JPMC plus accrued interest. In accordance with the Maiden Lane LLC agreements, the FRBNY will receive all future cash flows generated from the remaining Maiden Lane LLC assets.¹⁰ The FRBNY will continue to sell the remaining assets from the Maiden Lane LLC portfolio as market conditions warrant and if the sales represent good value for the public. Additional information is available at www.newyorkfed.org/newsevents/news/markets/2012/an120614.html  and www.newyorkfed.org/markets/maidenlane.html  .

Detailed information on the terms of the FRBNY loan, the holdings of Maiden Lane LLC (including the CUSIP number, descriptor, and the current principal balance or notional amount outstanding for nearly all of the holdings of Maiden Lane LLC with the exception of residential whole loans), and the sale of Maiden Lane LLC assets (including lists of assets sold from Maiden Lane LLC and the total amount purchased by each counterparty) is published on the FRBNY website at www.newyorkfed.org/markets/maidenlane.html  . The assets of Maiden Lane LLC are presented weekly in tables 1, 8, and 9 of the H.4.1 statistical release. Additional details on the accounts of Maiden Lane LLC are presented in table 4 of the H.4.1 statistical release.

References

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