If the program succeeds, loans to consumers and small businesses will become more plentiful
- and cheaper. That, in turn, could increase Americans' appetite to spend and help lift the country out of recession.
The program, created by the Federal Reserve and the Treasury Department, is called the Term Asset-Backed Securities Loan Facility.
Here are some questions and answers about the TALF:
Q: How can we get loans directly from the Fed to buy a car or small business?
A: You can't. The program provides loans to big investors and companies to buy newly issued securities backed by consumer debt. The idea is to stimulate lending for auto, education, credit card and other loans for consumers and small businesses.
Q: How does it work?
A: The program will start by providing up to $200 billion in financing to investors, such as hedge funds, private equity funds and mutual funds, to buy up the debt. It has the potential to generate up to $1 trillion in lending for households and businesses.
Participating companies must have an account set up with a "primary dealer"
- one of the 19 big banks and securities dealers that trade in U.S. government securities with the Federal Reserve Bank of New York. These dealers include Barclays Capital Inc., Banc of America Securities and Citigroup Global Markets Inc.
Q: When will average consumers benefit from this program?
A: Fed Chairman Ben Bernanke hopes soon. "We should see immediate benefits to students, to credit cards, to small businesses, to consumer loans," he told lawmakers this month.
Q: I've been hearing about this program for a while and thought "ALF" was coming back on TV. Wasn't it supposed to start earlier?
A: Yes. The program was announced late last year and slated to start in February. It's been hobbled by rule changes, worries from investors over financial privacy and fears among would-be participants about being the first to use the facility.
"I don't think there's a big appetite for investors to get involved," said Richard Yamarone, economist at Argus Research.
Investors requested a modest $4.7 billion worth of loans in the first batch of requests that were due Thursday. Of the total, $2.8 billion was to buy securities backed by credit cards and $1.9 billion was for securities linked to auto loans. No loans were requested for securities collateralized by student loans or loans guaranteed by the Small Business Administration.
Still, William Dudley, president of the Federal Reserve Bank of New York, called this a "a good start for a program that we will continue to build on in the future."
Q: Why is the government launching the TALF program?
A: For years, the markets for so-called asset-backed securities have been a key component of lending in the U.S. financial system. But the Fed says these markets "have been virtually shuttered since the worsening of the financial crisis in October." Lending to consumers and businesses has suffered as a result.
Q: Do the securities that investors buy have to be a certain quality?