Given the wide array of market participants, the program’s broad reach was necessary to effectively support the entire market. Let me turn to the program’s achievements. By providing liquidity and a backstop to limit losses to investors, the TALF contributed importantly to the revival of securitized credit markets. Secondary spreads narrowed significantly, and volatility moderated. Moreover, the improvements in the secondary market helped re-start the new-issue market. Issuance of non-mortgage asset-backed securities jumped to $ billion in the first three months of TALF lending in 2009, after having slowed to less than $ billion per month in late 2008. During those initial months that the TALF was in operation, about half of the issuance in the market was financed by the facility, with this degree of support then gradually declining as market function improved. 3 While each of the Federal Reserve’s liquidity facilities was ultimately aimed at encouraging the flow of credit to the economy, the TALF may be distinctive in offering a more direct impact to the consumer. In fact, nearly all of the auto lenders supported by the TALF reported that the facility enabled them to offer more credit to consumers at lower rates. Lenders attributed this impact to the program’s success in re-opening the securitization channel through which roughly half of consumer loans are financed. The TALF also facilitated the first issuance of commercial mortgage-backed securities since mid-2008, which provided an important benchmark for pricing and helped establish the higher credit standards now seen in the market.

More specifically, the TALF was designed to support the market for securitized credit. Overall, the TALF performed impressively in meeting that objective. The program contributed to a substantial improvement in conditions in the securitized credit market, facilitating an increase in the availability of credit to households and businesses. Moreover, it achieved this outcome with limited risk to the Federal Reserve’s balance sheet. Let me begin with some general background information on securitized credit markets. Securitization is an important funding source for bank and nonbank lenders. When a lender extends credit, it makes the decision of whether to keep loans on its books or to securitize and sell them to other investors. If kept on the lender’s books, the holdings have to be financed, either by borrowing or by using funds that could be deployed for other purposes, including making other loans. Thus, in many circumstances the lender finds it advantageous to sell assets through the securitization channel, allowing other investors to ultimately hold the assets and hence bear the risk. The amount of credit financed through securitization rivals that provided directly by banks. Indeed, even excluding the sizable securitization markets for mortgage credit, approximately $ trillion in loans to consumers, students, and businesses were securitized over the past decade. 2 The securitization market became significantly disrupted during the financial crisis in 2008 and 2009 in all areas outside of conforming agency mortgage-backed securities. Liquidity for securitized products deteriorated, leading to an unprecedented widening of spreads.