##uritized products were very difficult to trade, in part, because they were very difficult to value. the cessation of new asset - backed securitizations has been problematic because banks have not had the capacity to keep credit flowing freely. this is especially true given that bank balance sheets were already under strain – bank capital has been depleted by credit losses and bank balance sheet capacity has been strained by an inability of banks to securitize new loan originations and by the need for banks to honor their off - balance sheet obligations. for all these reasons, the federal reserve determined that it was important to augment the balance sheet capacity of the financial system by supporting the abs market. this was the purpose of the talf. by providing non - recourse, term financing for new aaa - rated consumer asset - backed securities to investors, the talf essentially provides the balance sheet capacity necessary to facilitate the continued flow of credit to households and businesses. the talf offers three attributes that the private sector has had difficulty providing during this time of financial and economic distress : 1 ) leverage to purchase highly - rated, low - risk assets, 2 ) term financing and 3 ) protection against very adverse economic outcomes. talf loans are leveraged – haircuts against the aaa - rated collateral average about 10 % ; the loan terms are three or five years ; and the loans are non - recourse, which means that if the economy performs very badly and the securities fall sharply in value, an investor can put the collateral that secures its talf loan back to the fed, only losing the collateral haircut. the loan is then extinguished. because term, non - recourse financing is not readily available from the private sector currently and the spreads on asset - backed securities remain elevated, talf provides an opportunity for investors to purchase aaa - rated consumer asset - backed securities and earn relatively high returns. although some observers are concerned by the prospect of talf investors achieving relatively high returns, i think that concern is misplaced. investor participation is absolutely essential in order for the talf to improve the availability of credit and to bring down the cost of credit for households and business. the prospect of relatively high expected risk - adjusted returns is precisely what gives investors an incentive to participate in the program. as investors begin to take advantage of the attractive talf terms, spreads on abs securities contracts, and rates of return go down, and most importantly, the costs of funds for the issuers

william c dudley : brief remarks about the centennial “ the fed at 100 ” exhibit introductory remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the museum of american finance, new york city, 25 september 2013. * * * thank you all for being here to commemorate the opening of the centennial exhibit for the federal reserve system and the federal reserve bank of new york at the museum of american finance, just a few blocks from the new york fed ’ s landmark head office at 33 liberty street. i would like to say thank you to our friends at the museum for their work and interest in the fed and for supporting us in organizing this event. before making some brief remarks about the centennial, i would also like to acknowledge some of the people in attendance tonight. we have two former new york fed presidents here this evening : jerry corrigan and bill mcdonough. i met jerry, the seventh president of the bank, when i was still wet behind the ears. i was just out of graduate school at the board of governors in washington, but jerry was already a force to be reckoned with and a part of paul volcker ’ s inner circle. jerry ’ s tenure as president had many memorable moments, including the october 1987 stock market “ break ”. jerry, of course, was instrumental in working with then chairman alan greenspan in devising a response to provide liquidity to the market, and an episode that could have ended in financial crisis soon passed. jerry also tackled many other difficult issues during his tenure, including the latin - american debt crisis and the development of the first basel accord. we also have bill mcdonough, the eighth president of the bank, who built on the accomplishments of jerry ’ s tenure, and made great strides in connecting the new york fed to the broader region. at the same time, he helped ensure that the federal reserve was prepared to face new, salient challenges presented by developments in the global economic and financial landscape. during his tenure, the city, the country and the bank experienced a very significant crisis on september 11, 2001. under bill ’ s leadership, new york fed staff worked tirelessly on liberty street, supporting the efforts of first responders, while ensuring that financial markets continued to operate and serve their vital function in the u. s. and global economy. a number of the members of our board of directors, including chairwoman rafferty, are with us, as is one of