Each depositor insured to at least $250,000 per insured bank

TEMPORARY LIQUIDITY GUARANTEE PROGRAM
FOURTH QUARTER 2009

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Notes to Users

Debt Guarantee Program Ended October 31, 2009 Emergency Facility Available until April 30, 2010, on Limited Basis Transaction Account Guarantee Program Extended to June 30, 2010 $309 Billion in Debt Outstanding in Program

FDIC Responds to Market Disruptions with TLGP

The FDIC Board approved the Temporary Liquidity Guarantee Program (TLGP)¹ on October 13, 2008, as major disruptions in credit markets blocked access to liquidity for financial institutions. The TLGP improved access to liquidity through two programs: by fully guaranteeing non-interest-bearing transaction deposit accounts above $250,000, regardless of dollar amount, and by guaranteeing eligible senior unsecured debt issued by eligible institutions.

All insured depository institutions were eligible to participate in the Transaction Account Guarantee Program (TAGP). Institutions eligible for participation in the Debt Guarantee Program (DGP) included insured depository institutions, U.S. bank holding companies, certain U.S. savings and loan holding companies, and other affiliates of insured depository institutions that the FDIC designates as eligible entities.

FDIC Extends Transaction Account and Debt Guarantee Programs

Although there was significant improvement in financial markets in the first half of 2009, portions of the industry were still impacted by the recent economic turmoil. In order to facilitate the orderly phase-out of the TLGP, and to continue access to FDIC guarantees where they were needed, the FDIC Board extended both components of the program.

On March 17, 2009, the Board of Directors of the FDIC voted to extend the deadline for issuance of guaranteed debt from June 30, 2009, to October 31, 2009, and extended the expiration date of the guarantee to the earlier of maturity of the debt or December 31, 2012, from June 30, 2012. The FDIC imposed a surcharge on debt issued with a maturity of one year or more beginning in the second quarter of 2009.²

A final rule extending the Transaction Account Guarantee component of the TLGP six months, to June 30, 2010, was adopted on August 26, 2009. Entities participating in the Transaction Account Guarantee program had the opportunity to opt out of the extended program. Depository institutions that remain in the extended program will be subject to increased fees that are adjusted to reflect the institution’s risk.³

The Board adopted a Final Rule on October 20, 2009, that allowed the DGP to expire on October 31, 2009.⁴ The Final Rule also established a limited, six-month guarantee facility upon expiration of the DGP. This emergency guarantee facility will be available on a case-by-case basis to entities participating in the DGP, upon application to the FDIC and with the approval of the Chairman after consultation with the Board.

Program Funded by Industry Fees and Assessments

The TLGP does not rely on taxpayer funding or the Deposit Insurance Fund. Both components of the program are paid for by direct user fees. Institutions participating in the Transaction Account Guarantee Program provided customers full coverage on non-interest-bearing transaction accounts for an annual fee of 10 basis points through year-end 2009. Fees for qualifying noninterest-bearing transaction accounts guaranteed between January 1, 2010, and June 30, 2010, will be based on the participating entity’s risk category assignment under the FDIC’s risk-based premium system. Annualized fees will be either 15, 20, or 25 basis points, depending on an institution’s risk category.

Fees for participation in the Debt Guarantee Program were based on the maturity of debt issued and ranged from 50 to 100 basis points (annualized). A surcharge was imposed on debt issued with a maturity of one year or greater after April 1, 2009. For debt that was not issued under the extension, that is, debt issued on or before June 30, 2009, and maturing on or before June 30, 2012, surcharges were 10 basis points (annualized) on debt issued by insured depository institutions and 20 basis points (annualized) on debt issued by other participating entities. For debt issued under the extension, that is, debt issued after June 30, 2009, or debt that matures after June 30, 2012, surcharges were 25 basis points (annualized) on debt issued by insured depository institutions and 50 basis points (annualized) on debt issued by other participating entities. As of December 31, 2009, a total of $10.3 billion in fees had been assessed under the Debt Guarantee Program.

A Majority of Eligible Entities Have Chosen to Participate in the TLGP

More than 86 percent of FDIC-insured institutions opted in to the original Transaction Account Guarantee Program, and more than half of all eligible entities elected to opt in to the Debt Guarantee Program. Over 6,000 depository institutions remain in the extended TAGP, while just over 500 elected to opt out of the program after year-end 2009. Lists of institutions that opted out of the guarantee programs are posted at http://www.fdic.gov/regulations/resources/TLGP/optout.html.

$834 Billion in Transaction Accounts over $250,000 Guaranteed

According to fourth quarter 2009 Call and Thrift Financial Reports, insured institutions reported 685,465 non-interest-bearing transaction accounts over $250,000, an increase of 5.6 percent compared to third quarter 2009. These deposit accounts totaled $1.0 trillion, of which $834 billion was guaranteed under the Transaction Account Guarantee Program. Over 5,800 FDIC-insured institutions reported non-interest-bearing transaction accounts over $250,000 in value.

Debt Outstanding Represents 54 percent of Total Cap on Issuers’ Guaranteed Debt

The amount of FDIC-guaranteed debt that could be issued by each eligible entity, or its “cap,” was based on the amount of its senior unsecured debt outstanding as of September 30, 2008, that matured on or before June 30, 2009. Eligible entities could issue debt up to 125 percent of that outstanding amount. The cap for FDIC-insured institutions that had no outstanding short-term senior unsecured debt other than Fed funds was set at 2 percent of liabilities as of September 30, 2008. Total debt outstanding at quarter-end represented 54 percent of issuing entities’ total cap.

Eighty-four financial entities—54 insured depository institutions and 30 bank and thrift holding companies and nonbank affiliates—had $309 billion in guaranteed debt outstanding at the end of the fourth quarter. Some banking groups issued FDIC-guaranteed debt at both the subsidiary and holding company level, but most guaranteed debt was issued by holding companies or nonbank affiliates of depository institutions. Bank and thrift holding companies and nonbank affiliates issued 80 percent of FDIC-guaranteed debt outstanding at December 31, 2009.

Debt outstanding at December 31, 2009, had longer term at issuance, compared to debt outstanding at year-end 2008. Less than 1 percent of debt outstanding matures in 180 days or less, compared to 49 percent at year-end 2008; and 78 percent matures more than two years after issuance, compared to 39 percent at December 31, 2008. Among types of debt instruments, 91 percent was in medium-term notes, compared to 44 percent at year-end. The share of outstanding debt in commercial paper fell to under 0.1 percent from 43 percent at year-end.

Footnotes

¹ The FDIC invoked the systemic risk exception pursuant to section 141 of the Federal Deposit Improvement Act of 1991, 12 U.S.C 1823(c)(4) on October 13, 2008. For further information on the TLGP, see http://www.fdic.gov/regulations/resources/TLGP/index.html.

²See http://www.fdic.gov/news/board/Mar1709rule.pdf.

³See http://www.fdic.gov/news/board/aug26no3.pdf.

⁴See http://www.fdic.gov/regulations/laws/federal/2009/09finalAD37Oct23.pdf.