FDIC Bank Debt Guarantee Program To End

FDIC Ends TLGP But Leaves Door Open For “Emergency Financing”

The FDIC issued a final ruling to phase out the Temporary Loan Guarantee Program (TLGP) by October 31, 2009.  In order to conclude the TLGP  in an orderly manner, however, the FDIC established a “limited emergency guarantee facility” for institutions that might be unable to refinance maturing senior unsecured debt.   The emergency financing would be on an application basis only and the FDIC fee for the debt guarantee would be 300 basis points annually.

The FDIC never seemed to be a willing participant in the TLGP program, considering the already strained financial position of the FDIC.  In its role of protecting insured deposits at over 8,000 banks, the FDIC’s Deposit Insurance Fund (DIF) has been largely depleted as the number of banking failures continues to increase (see FDIC To Bolster Insurance Fund With Prepaid Bank Assessments).

In its final ruling to phase out the TLGP, the FDIC noted that the stiff annual assessment of 300 basis points on any new “emergency” loan guarantees was meant to discourage further borrowing.

The FDIC is establishing the emergency guarantee facility to serve as a mechanism to phase-out the DGP, it is not intended to encourage indefinite participation.  The FDIC believes that establishing a 300 basis point minimum assessment rate will provide a more effective incentive for participating entities to wean themselves off of the FDIC’s guarantee program. Consequently, the FDIC has decided to retain the 300 basis point minimum assessment rate.

FDIC Debt Guarantees Unchanged For September 2009

The FDIC Temporary Loan Guarantee Program (TLGP) was instituted late last year.  The program’s stated purpose and goals, according to the FDIC, is as follows:

The FDIC has created this program to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.

The recently released FDIC 9/30/2009 report on the TLGP shows total guaranteed debt outstanding of $307  billion, essentially unchanged from August.   The number of banks using TLGP declined to 89 from 92 over the past month.

Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program

Debt Issuance under Guarantee Program
(dollar figures in millions)
September 30, 2009
Number Debt Outstanding Cap1 Debt Outstanding Share of Cap
Insured Depository Institutions with Assets <= $10 Billion 37 1,631 3,012 54.2%
Insured Depository Institutions with Assets > $10 Billion 20 57,356 231,965 24.7%
Bank and Thrift Holding Companies, Non-Insured Affiliates 32 248,194 384,606 64.5%
All Issuers 89 307,181 619,583 49.6%
1 The amount of FDIC-guaranteed debt that can be issued by each eligible entity, or its cap, is based on the amount of senior unsecured debt outstanding as of September 30, 2008. The cap for a depository institution with no senior unsecured debt outstanding at September 30, 2008, is set at 2 percent of total liabilities. See http://www2.fdic.gov/qbp/2008dec/tlgp2c.html for more information.

A large portion of the guaranteed debt had terms at issuance of over one year.   The process of fully winding down the FDIC TLGP program will take over 3 years, with the FDIC’s guarantee expiring no later than December 31, 2012.

At September 30, 2009, 25% of the TLGP debt guaranteed had a term of up to 2 years, 28 % had a term of 2 – 3 years and 47% had a term of over 3 years.

TLGP A Money Maker For The FDIC To Date

The FDIC has incurred no losses to date on the debt guarantee program.  The intention of the program was to allow banks to roll over or issue new debt at a time when capital markets were all but non functional.  The FDIC program was not meant to extend debt guarantees to financial firms whose future viability as a going concern was in question, as can be seen by the FDIC refusal to extend debt guarantees to CIT.

For September 2009, the FDIC earned $288 million on the TLGP.   The FDIC to date has made $9.6 billion in fees on the TLGP program and to date has incurred no losses.

Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program

Fees under TLGP Debt Program
(dollar figures in millions)

September 30, 2009

Debt Guarantee Program Transaction Account Guarantee Program Fees Collected*
Fees Assessed Surcharges Total Fee Amount
Fourth Quarter 2008 3,437 3,437
Month of January 2009 1,024 1,024
Month of February 2009 1,087 1,087
Month of March 2009 1,323 1,323 90
Month of April 2009 574 137 712
Month of May 2009 396 92 488
Month of June 2009 442 155 597 179
Month of July 2009 278 109 387
Month of August 2009 208 88 296
Month of September 2009 205 84 288 182
Total 8,973 665 9,639 450
*Pro-rated payment in arrears

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