Bernanke: Investor demand for TALF will grow

Federal Reserve Chairman Ben Bernanke predicts investors' appetites will continue to grow for a government program aimed at sparking consumer and business lending.

After getting off to a slow start in March, demand jumped in May, with investors requesting $10.6 billion worth of loans. Investors use the money to buy securities backed by auto and student loans, credit cards, loans guaranteed by the Small Business Administration and backed by business equipment.

Next month, the program — dubbed the Term-Asset-Backed Securities Loan Program, or TALF — will be expanded to include securities backed by commercial real-estate loans.

"Early indications are that demand for TALF loans in June will be even higher," Bernanke said in a letter to Rep. Keith Ellison, D-Minn. The letter, released Friday, was dated May 12.

The TALF has the potential to generate up to $1 trillion in lending for households and businesses. It figures prominently in efforts by the Fed and the Obama administration to ease credit stresses and stabilize the financial system, elements needed to lift the country out of recession.

By rolling commercial real-estate loans into the program, the Fed hopes to help prevent defaults on office parks and malls, and facilitate the sale of distressed properties.

The TALF program had been crimped 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. Bernanke acknowledged some of these challenges, saying "investors were reluctant to participate in a government program."

Bernanke's letter was responding to questions from Ellison and other lawmakers about the program, including some about what due diligence is being performed to ensure that credit ratings agencies are accurately assessing collateral for the loans. Credit-rating failures contributed to the financial crisis that plunged the country into recession.

Fed economists "have carefully reviewed the methodologies that the ratings agencies are employing," Bernanke said. An external auditor also weighs in with an opinion on the rating, he added.