News & Events

FDIC Issues Final Regulations on Temporary Liquidity Guarantee Program

• The new regulations revise the definition of "senior unsecured debt." Of particular interest: the final regulations exclude from the definition of senior unsecured debt any obligation with a stated maturity of 30 days or less. As such, it appears that most federal funds purchased or sold would be excluded from the Debt Guarantee Program.

• An alternative means for establishing a guarantee cap for insured depository institutions that either had no outstanding unsecured debt or only had federal funds purchased as of September 30, 2008, is set forth in the final regulations. In those instances, an insured depository institution would have a debt guarantee limit of 2% of its consolidated total liabilities as of September 30, 2008.

• Debt guarantee limits for a participating insured depository institution and its parent holding company may be combined. With proper written notice to both the FDIC and its parent holding company, a participating insured depository institution may issue guaranteed debt in an amount equal to the institution's limit plus its holding company's limit, so long as the total guaranteed debt issued does not exceed the combined debt guarantee limit for the institution and its holding company.

• The final regulations provide that senior unsecured debt can be evidenced by either a written agreement or an industry-accepted trade confirmation.

• The FDIC's payment obligation under the Debt Guarantee Program for eligible senior unsecured debt has been revised so that the obligation is triggered by a payment default instead of a bankruptcy filing. If a default occurs, the FDIC will continue to make scheduled interest and principal payments under the terms of the debt instrument through its maturity. The final regulation indicates, however, that the FDIC generally will consider the failure of an insured depository institution to make a payment on outstanding guaranteed debt resulting in the FDIC's paying off the debt to be grounds for the appointment of the FDIC as conservator or receiver of the insured depository institution.

• Participating entities in the Debt Guarantee Program must execute and file with the FDIC as part of their participation in the program, a "Master Agreement." Pursuant to this Agreement, in addition to other terms and conditions:
  • The participating entity must agree to the establishment of a debt owed to the FDIC for any payment made in satisfaction of the FDIC's guarantee of debt; and
  • A holder of guaranteed debt assigns to the FDIC all rights and interests it has against a participating entity upon payment of guaranteed debt.

• The fee structure for the debt guarantee program was revised so that assessment rates under the Debt Guarantee Program are as follows:
  • For debt with a maturity of 180 days or less (excluding overnight debt), the annualized assessment rate is 50 basis points;
  • For debt with a maturity between 181 to 364 days, the annualized assessment rate is 75 basis points; and
  • For debt with a maturity greater than 364 days, the annualized assessment rate is 100 basis points.

• Non-interest bearing accounts which are covered under the Transaction Account Guarantee Program now include (i) "Interest on Lawyers Trust Accounts" (IOLTAs) and (ii) NOW accounts with interest rates no higher than 0.50%.

• The final regulations set forth the specific disclosure statements and notices which must be made under the TLGP by those insured depository institutions who are participating in either component of the Program and by those insured depository institutions who have opted out of one or both components of the Program. For the Debt Guarantee Program, the disclosures must be included in all written materials provided to lenders or creditors for debt guaranteed under that program. For the Transaction Account Guarantee Program, the disclosures must be posted in the lobby of participating entity's main office, each domestic branch, and if the entity offers Internet deposit services, on the entity's Web site.