Treasury removes backstop to Fed lending program

The Treasury Department is removing its safety net from a dwindling bailout program administered by the Federal Reserve.

The Fed announced Tuesday that the Treasury would no longer provide credit protection to loans made under the Term Asset-Backed Securities Loan Facility (TALF), as the program has shrunk to a size where losses are no longer possible.

TALF was a program created by the Fed in 2009 to help support and spur consumer lending in the aftermath of the financial crisis. When the program closed in 2010, it had $43 billion in loans outstanding, which were given to investors to help encourage consumer lending for things like cars and student loans. 

While the Fed ran the program, the Treasury provided a key backstop to it, providing a certain level of credit protection. For example, the program originally was authorized to lend out up to $200 billion loans, and the Treasury agreed to provide $20 billion in protection as part of the Troubled Asset Relief Program (TARP). But over time, the amount of loans, and the level of protection, has shrunk.

Now, the amount of fees the Fed has claimed as part of TALF is larger than the amount of loans outstanding. A total of $743 million in fees have been collected compared to just $556 million in remaining outstanding loans. The Fed added that that last handful of loans remain well collateralized and are all current on payments of interest and principal.

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