The FDIC approved a final rule (the “Final Rule”) to phase out the Debt Guarantee Program (the “DGP”) of the Temporary Liquidity Guarantee Program (the “TLGP”). In October 2008, the FDIC adopted the TLGP as part of a coordinated effort by the FDIC and other federal agencies to address disruptions in credit markets and the resultant inability of financial institutions to obtain funding and make loans to creditworthy borrowers. For more on the TLGP generally, please see the October 14, 2008 Alert and the November 25, 2008 Alert. The FDIC had previously extended the DGP for four months, and recently extended the Transaction Account Guarantee Program of the TLGP for six months. For further discussion on the previous extension of the DGP, please see the February 17, 2009 Alert; and for further discussion on the extension of the Transaction Account Guarantee Program please see the September 1, 2009 Alert.

To ensure an orderly phase-out of the DGP, the FDIC is establishing a limited emergency guarantee facility. For most insured depository institutions and other entities participating in the DGP, the program will conclude on October 31, 2009, with the FDIC’s guarantee expiring no later than December 31, 2012. To the extent that certain of those entities become unable to issue non-guaranteed debt to replace maturing senior unsecured debt because of market disruptions or other circumstances beyond their control, an emergency guarantee facility will be available on an application basis to insured depository institutions participating in the DGP and any other entities that have issued FDIC‑guaranteed senior unsecured debt by September 9, 2009. [Read more →]

The FDIC adopted a Notice of Proposed Rulemaking (the “NPR”) that reaffirms the expiration of the Debt Guarantee Program (the “DGP”) of the Temporary Liquidity Guarantee Program (the “TLGP”) on October 31, 2009.  In October 2008, the FDIC adopted the TLGP as part of a coordinated effort by the FDIC and other federal agencies to address disruptions in credit markets and the resultant inability of financial institutions to obtain funding and make loans to creditworthy borrowers.  For more on the TLGP program generally please see the October 14, 2008 Alert and the November 25, 2008 Alert.  The FDIC had previously extended the DGP for four months, and recently extended the Transaction Account Guarantee Program of the TLGP for six months.  For further discussion on the previous extension of the DGP, please see the February 17, 2009 Alert; and for further discussion on the extension of the Transaction Account Guarantee Program please see the September 1, 2009 Alert.

The NPR contemplates two alternatives for the expiration of the DGP.  Under the first alternative, the DGP would expire as planned on October 31, 2009.  All insured depository institutions and other qualifying entities currently participating in the DGP would be permitted to issue FDIC-guaranteed senior unsecured debt until October 31, 2009, with the FDIC’s guarantee expiring no later than December 31, 2012.  Under the second alternative, the DGP would expire on October 31, 2009, as in the first alternative.  However, the FDIC would establish a limited emergency guarantee facility that would permit insured depository institutions participating in the DGP and any other entities that have issued FDIC guaranteed senior unsecured debt by September 9, 2009 to apply to the FDIC to issue FDIC guaranteed debt for an additional six months.  To use the emergency guarantee facility, applicants would be required to demonstrate their inability to issue non guaranteed debt or to replace maturing debt as a result of market disruptions or other circumstances beyond their control.  Any application under the emergency guarantee facility would require the approval of the Chairman of the FDIC, after consultation with the FDIC Board.  Applicants approved by the FDIC would pay an annualized participation fee of at least 300 basis points on the FDIC-guaranteed debt issued under the emergency guarantee facility and would be subject to other conditions imposed by the FDIC.  As with the first alternative, the FDIC’s guarantee would expire no later than December 31, 2012.

The FDIC has requested comments on the two proposed alternatives and will accept such comments for 15 days following the publication of the NPR in the Federal Register.

The FDIC adopted a final rule extending the Transaction Account Guarantee (“TAG”) portion of the Temporary Liquidity Guarantee Program for six months, through June 30, 2010. The TAG program provides an unlimited FDIC guarantee for deposits in qualifying noninterest-bearing transaction accounts.  For more on the TAG program, please see the October 14, 2008 Alert and the November 25, 2008 Alert.

Any insured depository institution that is currently participating in the TAG program may continue in the program during the extension period that ends on June 30, 2010.  Any institution currently participating in the TAG program that wishes to opt out of the TAG extension must submit its opt-out election via email to the FDIC on or before November 2, 2009.  Any such election to opt out will be effective on January 1, 2010 and any institution that opts out will continue in the TAG program through December 31, 2009, and must continue to report its TAG deposits accordingly.  The FDIC expects that every institution currently participating in the TAG program will review its disclosures and modify them as necessary to ensure that they will be accurate after December 31, 2009.

For those institutions that choose to remain in the program, the fee for the TAG program will be raised and adjusted to reflect the risk category assigned to the institution under the FDIC’s risk-based premium system.  The annual assessment rate that will apply to participating institutions during the extension period will be (a) 15 basis points for institutions in risk category 1, (b) 20 basis points for institutions in risk category 2 or (c) 25 basis points for institutions in risk category 3 or 4.  The fee will apply to any deposit amounts exceeding the existing deposit insurance limit of $250,000, as reported on the quarterly call report in any noninterest-bearing transaction accounts, including any such amounts swept from a noninterest-bearing transaction account into a noninterest-bearing savings deposit account.

The maximum interest rate limit for covered NOW accounts remains unchanged, which for purposes of the TAG program, will continue to include only those NOW accounts with interest rates no higher than 0.50 percent.

The FRB made changes to a number of its extraordinary lending programs, extending many into next year while also closing one and shrinking others. Originally set to expire October 31, 2009, 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”) were extended through February 1, 2010. The FRB also extended its temporary reciprocal currency arrangements with 14 other central banks until February 1, 2010. The FRB did not alter the December 31, 2009 expiration date for the Term Asset-Backed Securities Loan Facility. [Read more →]

The FDIC extended the debt guarantee portion of the Temporary Liquidity Guarantee Program (“TLGP”) from June 30, 2009 through October 31, 2009. For further discussion of the TLGP, please see the March 10, 2009, February 17, 2009, November 25, 2008, and October 28, 2008 Alerts. With the extension, all insured depository institutions and those additional participants, such as holding companies, that have actively participated in the debt guarantee portion of the TLGP (by issuing guaranteed debt before April 1, 2009) may continue to issue guaranteed debt through October 31, 2009, without application. Participants that are not insured depository institutions and that have not issued FDIC-guaranteed debt before April 1, 2009 must apply by June 30, 2009, if they wish to issue guaranteed debt after that date. The guarantee on debt issued before April 1, 2009, will expire no later than June 30, 2012. The guarantee on debt issued on or after April 1, 2009, will expire no later than December 31, 2012. [Read more →]

The FDIC issued a financial institution letter reminding directors and officers of FDIC-insured financial institutions that a strategy of aggressive asset growth or reliance on non-core liabilities (e.g., high-cost brokered or internet deposits, secured borrowings, or deposits that are newly insured or guaranteed pursuant to temporary FDIC programs) will result in more extensive monitoring and examination by the FDIC, and may result in higher deposit insurance premiums. [Read more →]

The FDIC adopted an interim rule that makes minor modifications to the Temporary Liquidity Guarantee Program (“TLGP”). For further discussion of the TLGP, please see the February 17, 2009, November 25, 2008, and October 28, 2008 Alerts. Under the interim rule, entities that are participating in the TLGP debt guarantee program would be able to issue certain mandatory convertible debt (“MCD”) that would be guaranteed by the FDIC under the TLGP. To be eligible for the guarantee, MCD must (a) meet the definition of senior unsecured debt under the TLGP; (b) be newly issued on or after February 27, 2009; and (c) provide in the debt instrument for the mandatory conversion of the debt into common shares of the issuing entity on a specified date no later than June 30, 2012. No FDIC-guaranteed MCD may be issued without the FDIC’s prior written approval. Entities must file a written application with the FDIC and the appropriate federal banking agency before issuing MCD. This interim rule will not result in a change to an eligible entity’s existing debt guarantee cap. The amount of the assessment fee for the FDIC’s guarantee of MCD will be based on the time period from issuance of the MCD until its mandatory conversion date. Institutions that issue FDIC-guaranteed MCD will have to comply with specific disclosure requirements.

The FDIC issued a final rule (the “Final Rule”) adopting and modifying its Temporary Liquidity Guarantee Program (the “TLGP”).  On October 13, 2008 (and as described in the October 14, 2008 Alert), the FDIC adopted and requested public comment on an Interim Rule establishing the TLGP.  The FDIC said that it established the TLGP “to decrease the cost of bank funding so that bank lending to consumers and businesses will normalize.”  The TLGP has two components: (i) a guarantee of newly issued senior unsecured debt of any FDIC-insured depository institution and certain bank and savings and loan holding companies engaged only in financial activities (the “Debt Guarantee Program”); and (ii) full deposit insurance coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount (the “Transaction Account Guarantee Program”). [Read more →]