On September 9, the Federal Deposit Insurance Corporation (FDIC) Board adopted a Notice of Proposed Rulemaking (NPR) that reaffirms the expiration of the debt guarantee component of the Temporary Liquidity Guarantee Program (TLGP) on October 31. Under the NPR, the FDIC will seek comment on whether a temporary emergency facility should be left in place for six months after the expiration of the current program.

FDIC Chairman Sheila Bair stated, “As domestic credit and liquidity markets appear to be normalizing and the number of entities utilizing the Debt Guarantee Program (DGP) has decreased, now is an important time to make clear our intent to end the program.”

Highlights:

  • Under Alternative A, the DGP would conclude as provided under current regulation. All insured depository institutions (IDIs) and other qualifying entities currently participating in the DGP would be permitted to issue FDIC-guaranteed senior unsecured debt until October 31, 2009, with the FDIC’s guarantee expiring no later than December 31, 2012.
  • Under Alternative B, the DGP generally would expire as above. However, the FDIC would establish a limited emergency guarantee facility that would permit IDIs (and other entities that had issued FDIC-guaranteed senior unsecured debt by September 9, 2009) to apply to the FDIC to issue FDIC-guaranteed debt for an additional six months. The FDIC’s guarantee would continue to expire no later than December 31, 2012.
  • To use the emergency guarantee facility described in Alternative B, applicants would be required to demonstrate their inability to issue non-guaranteed debt or to replace maturing debt as a result of market disruptions or other circumstances beyond their control. Applicants approved by the FDIC would pay an annualized participation fee of at least 300 basis points on FDIC-guaranteed debt issued and would be subject to other conditions imposed by the FDIC in accordance with Alternative B.

The NPR will be published in the Federal Register shortly and will be subject to a 15-day comment period.

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