What is the Consumer and Business Loan Initiative (CBLI)?
The Consumer and Business Loan Initiative (CBLI) was a federal program aimed at solving the 2008 credit crisis and restoring confidence in the economy by purchasing a huge amount of private debt by the government. The goal was to unlock credit and jump-start the economy by stimulating secondary loan markets to purchase assets backed by Small Business Administration (SBA) loans.
Administered by the United States Treasury, the Troubled Asset Relief Program (TARP) aimed to stabilize the nation’s financial system, restore economic growth, and reduce the number of foreclosures through huge volumes of distressed assets. and shares of the company that had been purchased. caught in the collapse of the housing market.
- The Consumer and Business Loan Initiative (CBLI) sought to indirectly inject credit into small businesses and consumers by increasing the number of institutions offering such credit.
- Up to $ 200 billion in investor financing It has been made available for the purchase of small business loans, commercial mortgage securitizations and consumer loans.
- This cash flow was expected to destroy credit markets and expand access to credit for small business owners and consumers.
- The CBLI was part of the Troubled Asset Relief Program (TARP).
Understanding the Consumer and Business Loan Initiative (CBLI)
As part of this larger cleanup effort, the Consumer and Business Loan Initiative (CBLI) was tasked with strengthening the credit markets available to small business owners and consumers. Up to $ 200 billion in financing intended for the purchase of small business loans, commercial mortgage securitizations and consumer loans.
This was facilitated through the Asset-Backed Securities Lending Facility (TALF), a program created by the United States Federal Reserve (FED) in November 2008 to boost consumer spending. and build the economy by issuing asset-backed securities (ABS) consisting of a car, a student, and credit card loans, as well as loans guaranteed by the SBA.
Low-cost investor financing was expected to provide securitization markets and expand access to credit for small business owners and consumers. The initiative also envisioned the Treasury’s purchase of SBA 504 and 7 (a) backed loans, which helped achieve these goals.
Benefits of the Consumer and Business Loan Initiative (CBLI)
CBLI supporters argued that a major Fed initiative was needed to protect secondary loan markets.
Important: ABSs have become an important way for financial institutions (FIs) to finance additional loans for businesses and households.
For modern banking, the process works like this: Commercial banks make market mortgages and other loans directly to consumers and small businesses. Banks then bundle some of these loans into lots sold on secondary markets for purchase by debt investors. The banks then have most of the money they lent (minus the discount paid by a secondary market buyer) to give consumers another round of loans.
The Consumer and Business Loan Initiative (CBLI) was part of the Troubled Asset Relief Program (TARP), enacted by President George W. Bush in October 2008. All of these programs were part of the federal government’s efforts to mitigate the effects of the Great Recession following the collapse of the housing market.
Without an efficient secondary loan market, CBLI supporters said, cash flow to consumers dries up.
Criticism of the Consumer and Business Loan Initiative (CBLI)
Despite his honorable resolution, not everyone praised the CBLI. When TARP returned in 2013, the government claimed it had saved more than a million jobs, helped stabilize banks, and restored the availability of credit for individuals and businesses.
However, some economists, politicians, and financial professionals questioned whether the money could be better used. It was suggested that the cash injection provided by CBLI to banks did not always target small business owners and consumers, as promised. Instead, banks used a flood of money for short-term loans rather than risking consumer and small business loans.
Timeline for the Consumer and Business Loan Initiative (CBLI)
The main events that occurred within the framework of the CBLI were the following:
- November 2008: TALF Announced
- February 10, 2009: The Fed, the Federal Reserve Bank of New York (FRBNY) and the United States Treasury reveal that TALF could expand significantly from $ 200 billion to $ 1 trillion.
- March 3, 2009 – Launch of TALF
- March 19, 2009: Agencies extend program-eligible collateral to include AB, such as floor plan loans, mortgage advances, commercial equipment leases and loans, and vehicle fleet leases.
- May 1, 2009: Fed Announces Newly Issued Commercial Mortgage-Backed Securities (CMBS) and ABS Backed by Collateral Insurance Premium Financial Loans Would Be Eligible Under TALF
- May 19, 2009: Fed Incorporates High-Quality Legacy CMBS Into Program
- June 2, 2009: VAT loan applications peak
- August 17, 2009 – TALF runs through June 2010
- June 30, 2010: TALF is closed for new loan extensions
According to the US Treasury, the TARP programs as a whole generated more than $ 7.9 billion more than was spent.