FDIC Loan Guarantees Under TLGP Decline Slightly For July 2009

FDIC Debt Guarantees Decline 5.6%

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 7/31/2009 report on the TLGP shows total guaranteed debt outstanding of $320 billion.  This represents a decrease from June 30 of 5.6% or $19 billion.  The number of banks using TLGP also declined to 94 from 97 over the past month.

Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program

Debt Issuance under Guarantee Program
(dollar figures in millions)
July 31, 2009
Number Debt Outstanding Cap1 for Group Debt Outstanding Share of Cap
Insured Depository Institutions with Assets <= $10 Billion 42 1,632 2,974 54.9%
Insured Depository Institutions with Assets > $10 Billion 20 57,533 314,758 18.3%
Bank and Thrift Holding Companies, Non-Insured Affiliates 32 260,980 471,194 55.4%
All Issuers 94 320,145 788,925 40.6%
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.

As capital markets have stabilized and fears of the banking industry being nationalized have abated, many banking institutions are now able to raise needed capital without the FDIC debt guarantee.  Last month it was noted that General Electric had been given FDIC approval to exit from the TLGP.   General Electric Capital reportedly had issued $44 billion of FDIC guaranteed debt.  The term of the debt at issuance was not known but as the debt guarantees mature, the amount of FDIC insured debt should continue to decline for GE and other large institutions such as Bank of America,  JP Morgan and Wells Fargo.

A large portion of the guaranteed debt had terms at issuance of over one year, so the process of gradually eliminating the FDIC TLGP program will take a number of years to fully wind down.  At July 31, 2009, 19% of the TLGP debt guaranteed had a term of 1 – 2 years, 25% had a term of 2 – 3 years and almost 42% had a term of over 3 years.

No Losses On TLGP 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.

Based on the reduced amount of TLGP activity, the FDIC debt guarantee fees assessed in July amounted to only $278 million.   The FDIC to date has made over $9 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 Assessed Under TLGP Debt Program
(dollar figures in millions)
July 31, 2009
Debt Guarantee 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
Month of April 2009 574 137 712
Month of May 2009 396 92 488
Month of June 2009 442 155 597
Month of July 2009 278 109 387
Total 8,560 494 9,054

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