The Federal Deposit Insurance Corp.'s (FDIC) board of directors has voted to extend the debt guarantee portion of the Temporary Liquidity Guarantee Program (TLGP) from June 30 through Oct. 31 and to impose a surcharge on debt issued with a maturity of one year or more beginning in the second quarter to gradually phase out the program.
‘The TLGP has been effective in improving short-term and intermediate-term funding for banking organizations, but liquidity in the financial markets has not returned to pre-crisis levels,’ says FDIC Chairman Sheila C. Bair. ‘The extension will reduce the potential for market disruption when the TLGP ends and should provide a gradual phaseout period as institutions return to reliance on the private, non-guaranteed debt markets.’
With the extension, all insured depository institutions and those additional participants, such as holding companies, that have actively participated in the debt guarantee portion of the TLGP (by issuing guaranteed debt before April 1) may continue to issue guaranteed debt through Oct. 31 without application. The guarantee on debt issued before April 1, 2009, will expire no later than June 30, 2012. The guarantee on debt issued on or after April 1, will expire no later than Dec. 31, 2012.
Participants that are not insured depository institutions and that have not issued FDIC-guaranteed debt before April 1 must apply by June 30, 2009, if they wish to issue guaranteed debt after that date. If the application is approved, the guarantee on debt issued on or after April 1 will expire no later than December 31, 2012.
The FDIC's board of directors has also voted to impose surcharges on guaranteed debt that has a maturity of one year or more and is issued on or after April 1.
For guaranteed debt that is issued by June 30 and matures by June 30, 2012, the surcharge will be 10 basis points (bps), on an annualized basis, for an insured depository institution and 20 bps, on an annualized basis, for all others. For all other guaranteed debt that utilizes the extension, the surcharge will be 25 bps (annualized) for an insured depository institution and 50 bps (annualized) for all others.
Surcharges will be will be in addition to current fees for guaranteed debt and deposited into the Deposit Insurance Fund (DIF) instead of being set aside to cover potential TLGP losses.
‘The surcharges recognize that a relatively small portion of the industry is actively using the debt guarantee, but all insured depository institutions ultimately bear the risks associated with this program,’ notes Bair. ‘Putting the surcharges in the DIF will bolster the reserves that support our regular insurance program. Surcharge revenues collected in the second quarter, combined with congressional action to increase our borrowing authority, should enable the FDIC to meaningfully reduce the 20 basis point special assessment proposed by the board on February 27.’