The FDIC today adopted amendments to extend its Temporary Liquidity Guarantee Program (TLGP) and to impose new surcharges on guaranteed debt, in each case in an effort to impose a “gradual phase-out” of the TLGP.

The deadline for issuing new guaranteed debt will be extended to October 31, 2009. The guarantee for debt issued before April 1, 2009, will expire on June 30, 2012, and the guarantee for debt issued on or after April 1, 2009, will expire on December 31, 2012. However, debt issued between April 1, 2009, and June 30, 2009, with a maturity of one year or more will be subject to an additional surcharge of 10 basis points for banks and 20 basis points for bank holding companies. Debt issued after June 30, 2009 with a maturity of one year or more will be subject to a surcharge of 25 basis points for banks and 50 basis points for bank holding companies.

The surcharge fees will be deposited to the FDIC’s deposit insurance fund (DIF), which has suffered a balance decline in recent months, sparking discussion of special assessments for banks unless the FDIC obtained another funding source. Chairman Shelia Bair noted:

“The surcharges recognize that a relatively small portion of the industry is actively using the debt guarantee, but all insured depository institutions ultimately bear the risks associated with this program. Putting the surcharges in the DIF will bolster the reserves that support our regular insurance program. Surcharge revenues collected in the second quarter, combined with Congressional action to increase our borrowing authority, should enable the FDIC to meaningfully reduce the 20 basis point special assessment proposed by the board on February 27th.”

Furthermore, while noting the perceived success that the TLGP has had in stabilizing the liquidity markets for banks and bank holding companies, the FDIC emphasized the importance in the long-run of creating incentives for these institutions to find funding in the capital markets that is not government-guaranteed.

Notably absent from this morning's meeting was any further discussion on the possibility of including longer-term secured debt under the TLGP. The FDIC has previously mentioned this possibility, and has recently expanded the program to include mandatory convertible debt, but, in light of this morning's focus on concluding the TLGP, further expansion of the TLGP to include longer-term secured debt may no longer be under consideration.