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) on October 13, 2008, as major disruptions in credit markets blocked access to liquidity for financial institutions1. The TLGP improved access to liquidity through the Transaction Account Guarantee Program (TAGP), which fully guarantees non-interest-bearing transaction deposit accounts above $250,000, regardless of dollar amount, and the Debt Guarantee Program (DGP), which guarantees eligible senior unsecured debt issued by eligible institutions.
All insured depository institutions are eligible to participate in the TAGP. Institutions eligible for participation in the DGP 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.
FDIC Extends Transaction Account and Debt Guarantee Programs
Although financial markets have improved significantly since the fall of 2008, 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 of Directors (Board) extended both the TAGP and the DGP.
On March 17, 2009, the Board 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 20092.
A final rule extending the TAGP six months, to June 30, 2010, was adopted on August 26, 2009. Entities currently participating in the 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 risk3.
The Board adopted a final rule on October 20, 2009, that allows the DGP to expire on October 31, 20094. The rule also establishes a limited, six-month guarantee facility upon expiration of the DGP. This emergency guarantee facility would 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 TAGP 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 DGP 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 September 30, 2009, a total of $9.6 billion in fees had been assessed under the DGP.
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 TAGP, and more than half of all eligible entities have elected to opt in to the DGP. Lists of institutions that opted out of the guarantee programs are posted at http://www.fdic.gov/regulations/resources/TLGP/optout.html.
$760 Billion in Transaction Accounts over $250,000 Guaranteed
According to third quarter 2009 Call and Thrift Financial Reports, insured institutions reported 647,787 non-interest-bearing transaction accounts over $250,000, a decline of 2.9 percent compared with second quarter 2009. These deposit accounts totaled $923 billion, of which $761 billion was guaranteed under the TAGP. More than 5,800 FDIC-insured institutions reported non-interest-bearing transaction accounts over $250,000 in value.
Debt Outstanding Represents 50 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 50 percent of issuing entities’ total cap.
Eighty-nine financial entities—57 insured depository institutions and 32 bank and thrift holding companies and nonbank affiliates—had $307 billion in guaranteed debt outstanding at the end of the third 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 81 percent of FDIC-guaranteed debt outstanding at September 30, 2009.
Debt outstanding at September 30 had longer terms at issuance, compared to debt outstanding at year-end. Slightly more than 2 percent of debt outstanding matures in 180 days or less, compared with 49 percent at year-end; and 75 percent matures more than two years after issuance, compared with 39 percent at December 31, 2008. Among types of debt instruments, 89 percent was in medium-term notes, compared with 44 percent at year-end. The share of outstanding debt in commercial paper fell to 2 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
1The 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 11/24/2009||Questions, Suggestions & Requests|