On November 3, 2008. the FDIC issued Financial Institutions Letter 125-2008 (the “FIL- 125-2008 ”), which extends the opt out deadline for the agency’s Temporary Liquidity Guarantee Program (“TLGP”) from November 12, 2008 to December 5, 2008. The TLGP consists of two components: a temporary guarantee of newly issued senior unsecured debt (the “Debt Guarantee”) and a temporary unlimited guarantee of funds in non-interest-bearing transaction accounts at FDIC-insured institutions (the “Transaction Account Guarantee”). The TLGP has been the subject of previous Alerts dated October 14, 2008, October 21, 2008 and October 27, 2008.
FIL-125-2008 states that the deadline has been extended to December 5, 2008 to ensure that eligible entities have an opportunity to fully evaluate their decision as to participation in the TLGP. Any entity that opts out of either the Debt Guarantee or the Transaction Account Guarantee, or both, by that date will not pay any assessments for the coverage for which it has opted out. Failure to opt out by the deadline constitutes an irrevocable decision to continue participation. Likewise, an election to opt out is irrevocable. FIL-125-2008 emphasizes that each component of a holding company structure must make the same election as to each aspect of the TLGP.
If an entity does not opt out of the Transaction Account Guarantee by December 5, 2008, it will be assessed for the coverage based on a start date of November 13, 2008, which is the day after the original opt out date.
For the Debt Guarantee, entities that do not opt out will be required to pay for coverage on all senior, unsecured debt issued as follows:
- Beginning on November 13, 2008, on all senior, unsecured debt, other than overnight debt instruments, issued by the entity on or after October 14, 2008, that is still outstanding on November 13, 2008;
- Beginning on November 13, 2008, on all senior, unsecured debt, other than overnight debt instruments, issued by the entity on or after November 13, 2008, and before December 6, 2008; and
- Beginning on December 6, 2008, on all senior, unsecured debt issued by the entity on or after December 6, 2008.
The TLGP Program assessments are as follows:
- For the Transaction Account Guarantee, amounts exceeding the existing deposit insurance limit of $250,000 in any non-interest-bearing transaction accounts as defined in the FDIC’s final rule on the TLGP will be assessed an annualized 10 basis points to be collected quarterly for coverage through December 31, 2009.
- For the Debt Guarantee, all newly issued senior unsecured debt will be charged an annualized assessment equal to 75 basis points, multiplied by the amount of debt issued, and calculated for the term of that debt or through June 30, 2012, whichever is earlier.
FIL-125-2008 indicates that, in order to opt out of either the Debt Guarantee or the Transaction Account Guarantee, or both, an eligible entity must complete, on or before December 5, 2008, the FDIC’s Temporary Liquidity Guarantee Program Election Form (“Election Form”) via FDICconnect. The Election Form is scheduled to be available on FDICconnect beginning on November 12, 2008. The election must be attested to by the entity’s Chief Financial Officer. Eligible entities that are not insured institutions (e.g., bank or savings and loan holding companies) must have their opt out election submitted via FDICconnect by an insured institution. Entities must receive a confirmation page on FDICconnect to ensure that the election has been properly submitted.
FIL-125-2008 contains instructions for entities that are participating in the Debt Guarantee for reporting the amount of senior, unsecured debt as of September 30, 2008 for purposes of determining the maximum amount that can be guaranteed. Procedures for entities in the Debt Guarantee Program to report newly issued debt, and to issue certain non-guaranteed senior, unsecured debt before reaching the maximum amount of senior, unsecured debt that can be guaranteed (along with an explanation of the required nonrefundable fees), are also set out in the FIL.
This Alert summarizes the highlights of the FDIC’s FIL-125-2008. However, each institution is strongly encouraged to obtain and carefully review FIL-125-2008 so that it fully understands all aspects of the TLGP and the opt out and reporting procedures.