Quarterly Banking Profile
TEMPORARY LIQUIDITY GUARANTEE PROGRAM
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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 by fully guaranteeing non-interest-bearing transaction deposit accounts above $250,000, regardless of dollar amount, in the Transaction Account Guarantee Program, and by guaranteeing eligible senior unsecured debt issued by eligible institutions in the Debt Guarantee Program.
Although financial markets have improved significantly since the TLGP was implemented, portions of the industry are still suffering from recent economic turmoil. To facilitate the orderly phase-out of the TLGP, and to continue access to FDIC guarantees where they are needed, the FDIC Board has extended both components of the program.
A final rule extending the Transaction Account Guarantee component of the TLGP by six months, to June 30, 2010, was adopted on August 26, 2009. Entities currently participating in the Transaction Account Guarantee Program will have an 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.2
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 2009.3
All insured depository institutions are eligible to participate in the Transaction Account Guarantee Program. Institutions eligible for participation in the Debt Guarantee Program include 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.
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 provide customers full coverage on non-interest-bearing transaction accounts for an annual fee of 10 basis points through year-end 2009. Fees for qualifying non-interest-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 depend on the maturity of debt issued and range from 50 to 100 basis points (annualized). A surcharge will be imposed on debt issued with a maturity of one year or greater after April 1, 2009. For debt that is not issued under the extension, that is, debt that is issued on or before June 30, 2009, and matures on or before June 30, 2012, surcharges will be 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 will be 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 June 30, 2009, a total of $8.7 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 have opted in to the Transaction Account Guarantee Program, and more than half of all eligible entities have opted in to the Debt Guarantee Program. Lists of institutions that opted out of the guarantee programs are posted at http://www.fdic.gov/regulations/resources/TLGP/optout.html.
$700 Billion in Transaction Accounts over $250,000 Guaranteed
According to second quarter 2009 Call and Thrift Financial Reports, insured institutions reported 655,427 non-interest-bearing transaction accounts over $250,000, an increase of 12 percent compared with first quarter 2009. These deposit accounts totaled $900 billion, of which $736 billion was guaranteed under the Transaction Account Guarantee Program. More than 5,800 FDIC-insured institutions reported non-interest-bearing transaction accounts over $250,000 in value.
Debt Outstanding Represents 43 Percent of Total Cap on Issuers’ Guaranteed Debt
The amount of FDIC-guaranteed debt that can be issued by each eligible entity, or its “cap,” is based on the amount of its senior unsecured debt outstanding as of September 30, 2008, that matures on or before June 30, 2009. Eligible entities may 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 is set at 2 percent of liabilities as of September 30, 2008. Total debt outstanding at quarter end represented 43 percent of issuing entities’ total cap.
Ninety-seven financial entities—64 insured depository institutions and 33 bank and thrift holding companies and nonbank affiliates—had $339 billion in guaranteed debt outstanding at the end of the second 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 82 percent of FDIC-guaranteed debt outstanding at June 30, 2009.
Debt outstanding at June 30 had longer terms at issuance, compared with debt outstanding at year-end. Only 17 percent of debt outstanding matures in 180 days or less, compared with 49 percent at year-end; and 62 percent matures more than two years after issuance, compared with 39 percent at December 31, 2008. Among types of debt instruments, almost three-quarters, 74 percent, was in medium-term notes, compared with 44 percent at year-end. The share of outstanding debt in commercial paper fell to 15 percent from 43 percent at year-end.
TABLE I-C. Participation in Temporary Liquidity Guarantee Program
TABLE II-C. Cap on FDIC-Guaranteed Debt for Opt-In Entities
TABLE III-C. Transaction Account Guarantee Program
TABLE IV-C. Debt Outstanding in Guarantee Program
TABLE V-C. Fees Assessed Under TLGP
TABLE VI-C. Term at Issuance of Debt Instruments Outstanding
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.
|Last Updated 08/27/2009||Questions, Suggestions & Requests|