Yesterday, the Congressional Oversight Panel (COP) – responsible for overseeing the actions taken by the U.S. Treasury to revive the economy since late last year – issued a report entitled “Reviving Lending to Small Businesses and Families and the Impact of the TALF.” TALF, or the Term Asset-Backed Loan Facility, was launched earlier this year in a coordinated effort by the Federal Reserve Bank of New York and the U.S. Treasury to jumpstart the asset-backed securities market and, consequently, increase the availability of capital to consumers and small businesses.

In the report, the COP analyzed the past and current state of lending to families and small businesses and explored whether TALF was creating greater opportunities for lending in these markets during the economic downturn. Specifically, the COP asked two questions: First, is the TALF program well-designed to help market participants meet the credit needs of households and small businesses? Second, even if the program is well-designed, is it likely to have a significant impact on access to credit?

The COP’s report outlined the situations in which securitization has historically been helpful and unhelpful to small business and consumer lending in the past. The COP also outlined some of the perceived flaws of the TALF program in reenergizing the securitization market, attributing the underwhelming investor response to TALF to lack of demand for securitization in certain segments, claimed flaws in the program’s design and fear of political risk. Ultimately, the COP concluded that while TALF (and revival of the securitization market) is one vital component of increasing the availability of credit, it cannot be the sole policy initiative driving recovery in these segments. In particular, the COP noted that policy decisions “must assure that banks assess their credit risks without regard to whether loans can be securitized.”