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Quarterly Banking Profile

TEMPORARY LIQUIDITY GUARANTEE PROGRAM
Third Quarter 2010

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Notes to Users

  • Debt Guarantee Program Ended October 31, 2009
  • Transaction Account Guarantee Program Extended to December 31, 2010
  • $107 Billion Guaranteed in Transaction Accounts over $250,000
  • $287 Billion Outstanding in Debt Guarantee Program
  • 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 institutions.1 The TLGP improved access to liquidity through two programs: the Transaction Account Guarantee Program (TAGP), which fully guarantees noninterest-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 were eligible to participate in the TAGP. Institutions eligible to participate in the DGP were 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 designated as eligible entities.

    FDIC Extends Guarantee Programs

    Although financial markets improved significantly in the first half of 2009, portions of the industry were still affected by the recent economic turmoil. 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 the DGP and TAGP.

    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 second quarter 2009.2 The Board adopted a final rule on October 20, 2009, that allowed the DGP to expire on October 31, 2009.3

    A final rule extending the TAGP six months, to June 30, 2010, was adopted on August 26, 2009. Entities participating in the TAGP had the opportunity to opt out of the extended program. Depository institutions that remained in the extended program were subject to increased fees that were adjusted to reflect the institution’s risk.4

    On June 22, 2010, the FDIC adopted a final rule extending the TAGP for another six months, through December 31, 2010. The final rule is almost identical to an interim rule adopted on April 13. Under the rule, the FDIC could extend the program for an additional 12 months without further rulemaking.5

    Noninterest-Bearing Transaction Accounts Fully Insured under Dodd-Frank Reform Bill

    According to an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, noninterestbearing transaction accounts at all FDIC-insured institutions will be fully insured for two years. This amendment takes effect on December 31, 2010. Coverage of noninterest-bearing transaction accounts is separate from the regular insurance limit of $250,000. Assessments for noninterest-bearing transaction accounts will be included in the regular assessments for insured institutions.6

    Program Funded by Industry Fees and Assessments

    The TLGP does not rely on taxpayer funding or the Deposit Insurance Fund. Both the TAGP and the DGP are paid for by direct user fees. Institutions participating in the TAGP through year-end 2009 were assessed an annual fee of 10 basis points. Fees for qualifying noninterest-bearing transaction accounts guaranteed between January 1, 2010, and June 30, 2010, were based on the participating entity’s risk category assignment under the FDIC’s risk-based premium system. Annualized fees are 15, 20, or 25 basis points, depending on an institution’s risk category.

    Fees for participation in the DGP 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 March 31, 2010, fees totaling $10.4 billion had been assessed under the DGP.

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

    About 74 percent of FDIC-insured institutions opted in to the TAGP extension through December 31, 2010. More than half of all eligible entities 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.

    $107 Billion in Transaction Accounts over $250,000 Guaranteed

    According to third quarter 2010 Call and Thrift Financial Reports, insured institutions reported 190,817 noninterest-bearing transaction accounts over $250,000, fewer than one-third the number of accounts reported at year-end 2009. These deposit accounts totaled $155 billion, of which $107 billion was guaranteed under the TAGP. More than 5,100 FDIC-insured institutions reported noninterest-bearing transaction accounts over $250,000 in value.

    $287 Billion in FDIC-Guaranteed Debt Was Outstanding at September 30, 2010

    Sixty-eight financial entities—40 insured depository institutions and 28 bank and thrift holding companies and nonbank affiliates—had $287 billion in guaranteed debt outstanding at the end of third quarter 2010. 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 84 percent of FDIC-guaranteed debt outstanding at September 30, 2010.

    Debt outstanding at September 30, 2010, had longer terms at issuance, compared to debt outstanding at yearend 2008. Less than 1 percent of debt outstanding matures in one year or less, compared to 52 percent at yearend 2008; and 85 percent matures more than two years after issuance, compared to 39 percent at December 31, 2008. Among types of debt instruments, 92 percent was in medium-term notes, compared to 44 percent at year-end. The share of outstanding debt in commercial paper fell to less than 0.01 percent from 43 percent at year-end 2008

    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


    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.

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

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

    4 See http://www.fdic.gov/news/board/aug26no3.pdf. The final rule requires that interest rates on qualifying NOW accounts offered by banks participating in the program be reduced to 0.25 percent from 0.50 percent. The rule also requires TAG assessment reporting to be based on average daily balances but makes no changes to the assessment rates for participating institutions.

    5 See http://www.fdic.gov/news/news/press/2010/pr10139.html.

    6 See http://www.fdic.gov/regulations/reform/summary.html.


    Last Updated 11/23/2010 Questions, Suggestions & Requests