TEMPORARY LIQUIDITY GUARANTEE PROGRAM
FIRST QUARTER 2009
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Notes to Users
FDIC Responds to Market Disruptions with TLGP
The FDIC Board approved the Temporary Liquidity Guarantee Program (TLGP) on October 13, 2008, as major disruptions in credit markets blocked access to liquidity for financial institutions1. 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, until December 31, 2009; and by guaranteeing eligible senior unsecured debt issued by eligible institutions between October 14, 2008, and June 30, 2009. Under the final rule adopted on November 21, 2008, the FDIC guarantee would be in effect until the earlier of the maturity of the debt or June 30, 2012.
On March 17, 2009, the Board of Directors of the FDIC voted to extend the deadline for issuance to October 31, 2009, and set the expiration date of the guarantee to the earlier of maturity of the debt or December 31, 2012. The FDIC will impose a surcharge on debt issued with a maturity of one year or more beginning in the second quarter of 20092.
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. 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 March 31, 2008, a total of $6.9 billion in fees had been assessed under the Debt Guarantee Program.
A Majority of Eligible Entities Have Chosen to Participate in the TLGP
According to submissions received by the FDIC, 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 elected to opt 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.
Insured Institutions Report Half a Million Transaction Accounts over $250,000
According to first quarter 2009 Call Reports, insured institutions reported 580,920 non-interest-bearing transaction accounts over $250,000, an increase of 12 percent in number compared to fourth quarter 2008. These deposit accounts totaled $845 billion, of which $700 billion was guaranteed under the Transaction Account Guarantee Program. Over 6,500 FDIC-insured institutions reported non-interest-bearing transaction accounts over $250,000 in value.
Limits on Debt Issuance Based on Third Quarter 2008 Balances
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 44 percent of issuing entities’ total cap.
$336 Billion in FDIC-Guaranteed Debt Was Outstanding at March 31, 2009
Ninety-seven financial entities—66 insured depository institutions and 31 bank and thrift holding companies and nonbank affiliates—had $336 billion in guaranteed debt outstanding at the end of the first 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 year-end.
Debt outstanding at March 31 had longer terms at issuance, compared to debt outstanding at year-end. Only 28 percent of debt outstanding matures in 180 days or less, compared to 49 percent at year-end, and 53 percent matures in two or more years after issuance, compared to 39 percent at December 31, 2008. Among types of debt instruments, almost two-thirds, 64 percent, was in medium-term notes, compared to 44 percent at year-end. The share of outstanding debt in commercial paper fell to 22 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 Issuance under Guarantee Program
TABLE V-C. Fees Assessed under TLGP Debt Program
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.
2 See http://www.fdic.gov/news/board/Mar1709rule.pdf.