On April 7, the Federal Reserve Bank of New York (FRBNY) published a letter dated April 1 from both the FRBNY and the Board of Governors of the Federal Reserve System to Elizabeth Warren, the Chair of the Troubled Asset Relief Program Congressional Oversight Panel (COP). The letter was sent in response to a March 20 inquiry by the COP regarding the FRBNY’s Term Asset-Backed Securities Lending Facility (TALF). In its inquiry, the COP posed a number of questions and raised criticisms regarding the TALF program, and specifically referred to a March 14 article in the Wall Street Journal titled “TALF Is Reworked After Investors Balk”, in which it was reported that “Wall Street dealers... have created vehicles to participate in the TALF that would allow investors in the program to circumvent many of the restrictions laid out by the Fed. The vehicles resemble collateralized debt obligations, or CDOs, and use some of the financial engineering that was partially responsible for the collapse of the credit markets.”
In its response, the FRBNY stated that “[t]he Wall Street Journal provided an inaccurate portrayal of our position with respect to the reported proposals of certain dealers as they regard ‘vehicles [created] to participate in TALF that would allow investors in the program to circumvent many of the restrictions laid out by the Fed.’ The Federal Reserve expects to release guidance shortly that will clarify the legal and compliance standards applicable to investment funds, with the aim of ensuring that all borrowers in the program, regardless of investor type, meet a common set of eligibility standards. The guidance will be published on our website.”
Click here to read the FRBNY response letter.