On October 5, the Federal Reserve Board announced two changes to the procedures for evaluating asset-backed securities (ABS) pledged to the Term Asset-Backed Securities Loan Facility (TALF). First, the Federal Reserve Board has proposed a rule that would establish criteria for the Federal Reserve Bank of New York to determine the Nationally Recognized Statistical Rating Organizations (NRSROs), whose ratings are accepted for determining the eligibility of ABS to be pledged as collateral at the TALF. The proposed rule would likely result in an expansion of TALF-eligible NRSROs for ABS and is intended to promote competition among NRSROs. Second, starting with the November subscription, the Federal Reserve Bank of New York will conduct a formal risk assessment of all proposed collateral--ABS in addition to Commercial Mortgage-Backed Securities. The Board will continue to require that collateral for TALF loans receive two AAA ratings from TALF-eligible NRSROs.
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