Eight top financial executives from various firms appeared yesterday before Congress. CNN reports:
Many of the CEOs at Wednesday's hearing defended their actions, noting that while credit standards have tightened, they were continuing to issue loans. Several of the CEOs added that without government assistance, credit would be even harder to obtain.Looking at the data, it looks like they may have a point (though they play a big part in this story later on). Since 1948, the commercial banking sector's share of consumer loan holdings dwindled from a peak of more than half the entire market (in the late 1970's), to less than 30% at the beginning of this decade.
"We are still lending, and we are lending far more because of the TARP program," Bank of America Chairman and CEO Ken Lewis said in a copy of his prepared remarks.
The issue thus isn't only whether commercial banks are lending, but how to bring the securitization market back to life. Securitization holdings of consumer loans grew larger than that of commercial banks, all from nothing just 20 years ago.
And now the securitization market has all but ceased. WSJ's Marketbeat reports:
Securitization issuance is down 91% from this point last year, according to Dealogic, with asset-backed issuance declining to $2.6 billion from $32.1 billion at this point a year ago. Most consumer loans, such as credit cards, auto loans, student loans and others, are relatively easy to bundle and sell as securitized assets, but not now, when buyers of such product do not exist.
Under the TALF, the Federal Reserve Bank of New York will lend to each borrower an amount equal to the value of the pledged ABS minus a haircut. The Fed posted a haircut schedule Friday.
Borrowers will be able to choose either a fixed or floating interest rate on TALF loans. The fixed interest rate will be 100 basis points over the three-year Libor swap rate, and the floating interest rate will be 100 basis points over one-month Libor.
Source: Federal Reserve