What is the FED new lending facility all about?
D_D asked:
If a company puts up mortgage back securities as collateral for a loan from the Federal Reserve, what happens if the owners default? Are companies ‘refi’ their debt with this new liquidity? If companies already wrote off their bad loans, how can they claim it as collateral?
If a company puts up mortgage back securities as collateral for a loan from the Federal Reserve, what happens if the owners default? Are companies ‘refi’ their debt with this new liquidity? If companies already wrote off their bad loans, how can they claim it as collateral?
Here’s a great FAQ on the TAF:
- Re: If a company puts up mortgage back securities as collateral for a loan from the Federal Reserve, what happens if the owners default?
The Depository Institution must pledge additional collateral, or be subject to remedial action by the Federal Reserve (i.e. the Feds come in and treat it as insolvent)
- Re: If companies already wrote off their bad loans, how can they claim it as collateral?
Written off loans cannot be considered collateral. By ‘writing them off’, they are removed from the books as an asset.