Timothy Lopes, Executive, Vinod Kothari Consultants
Measures to maintain and strengthen credit flow to consumers is an important part of regulatory initiatives to contain the effects of the COVID crisis. Asset-backed securities and structured finance instrument are recognised as important instruments that connect capital market resources with the market for loans and financial assets. Underscoring the relevance of securitization to the flow of credit to consumers, the US Federal Reserve has set up a USD 100 billion loan facility, called Term Asset-backed Securities Loan Facility, 2020 [TALF] for lending against asset backed securities, issued on or after 23rd March, 2020.
Note that equivalent of TALF 2020 was set up post the Global Financial Crisis (GFC) as well, in 2008.
It is also notable that global financial supervisors have attempted to help financial intermediaries stay firm, partly by helping structured finance transactions. The example of the Australian regulators setting up a Structured Finance Support Fund (SFSF) is one such regulatory measure. Another example is the Canada Mortgage Bond Purchase Program initiated by the Bank of Canada.