Investors request $10.6B in TALF loans from Fed

WASHINGTON — Demand surged this month from investors seeking to participate in a government program aimed at jump-starting lending to consumers and small businesses.

Investors requested $10.6 billion worth of loans, the Federal Reserve Bank of New York said Tuesday. That’s up from just $1.7 billion in loans last month, and $4.7 billion in requests from the initial round in March.

Investors use the money to buy securities backed by auto and student loans, credit cards, loans guaranteed by the Small Business Administration and loans backed by business equipment.

The goal of the program, created by the Federal Reserve and the Treasury Department, is to boost the availability of loans to consumers and businesses at cheaper rates. Spurring such lending will help the economy.

The Term Asset-Backed Securities Loan Facility, or TALF, figures prominently in efforts by the Fed and the Obama administration to ease credit stresses and stabilize the financial system. Those are critical elements needed to lift the country out of recession.

The TALF has the potential to generate up to $1 trillion in lending for households and businesses.

Of the $10.6 billion in loans that will be made available in May, $5.5 billion was for securities backed by credit cards, $2.3 billion for securities backed by student loans and $2.2 billion for securities backed by auto loans. The rest of the money requested was for securities backed by the SBA and business equipment.

“After getting off to a slow start, the larger size of today’s operation will probably be seen as evidence of the program’s success,” said Michael Feroli, economist at JPMorgan Economics.

In June, the Fed will start offering investors loans to buy securities backed by commercial real estate loans. The commercial real estate market also has been hard hit by the worst financial crisis since the 1930s.

The Fed hopes that part of the TALF will boost the availability of these loans, help prevent defaults on commercial properties like office parks and malls, and facilitate the sale of distressed properties.

The TALF program had gotten off to a lethargic start. It has been hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.