Banks Will Soon See Cheap Credit Shut Off

Banks have about seven months to go before the faucet of cheap government lending is shut, the Federal Reserve said Thursday.

Banks have been accessing cheap funding from the Fed in exchange for collateral like student loans, auto loans, credit card debt and commercial paper. The liquidity programs launched by the Fed late last year have helped stabilize the markets and allowed banks to boost profitability by borrowing inexpensively to fund new loans in a low-interest rate environment.

Several programs, often referred to by acronyms like TALF or AMLF, helped boost the first-quarter bottom lines for major players like Bank of America (BAC Quote), JPMorgan Chase (JPM Quote), Citigroup (C Quote), Wells Fargo (WFC Quote), as well as smaller banking counterparts. Goldman Sachs (GS Quote) and Morgan Stanley (MS Quote) became bank holding companies, in part to avail themselves of such programs as well.

But since late November, when some programs were first unveiled, the markets have stabilized. With fewer fears about the impending failure of major banks, private partners have been instilled with enough trust to borrow and lend from one another again. As such, the Fed decided to halt some programs, curtail others, and set a timeframe on the duration of those that continue.

One key program, the Term Asset-Backed Securities Loan Facility (TALF), will extend through the end of this year. Four others will continue through Feb. 1, among them the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF).