US watchdog questions TALF business, family impact

By Kevin Drawbaugh

WASHINGTON, May 7 (Reuters) - The congressional watchdog for the U.S. government's massive financial rescue effort on Thursday questioned whether a key Federal Reserve program is doing much to help small businesses and households.

Elizabeth Warren, chairman of the Congressional Oversight Panel, said it was unclear whether the Fed's Term Asset-backed Securities Loan Facility is working.

Created last year to revive a paralyzed market for securitized small business and household debt amid a severe global credit crunch, the TALF had a rough start. It has recently attracted more interest in the debt markets.

TALF was supposed to make it easier for banks to pool loans made to small businesses and consumers, then sell securities in those pools to investors -- a process known as securitization.

By breathing new life into the market for this class of asset-backed securities, TALF was meant to channel more money to banks to lend to credit-starved businesses and consumers.

Warren, a Harvard University Law School professor who heads a wide-ranging panel monitoring many financial rescue programs, said in a report that the TALF's success faces two key tests.

First is whether it is bringing more investors into the securitization market for small business and household debt, and thereby supplying banks with more capital to lend.

"TALF is designed to bring these investors back into the market by passing the risk to the taxpayers," Warren said.