Yesterday, the FDIC issued a final rule providing for the limited extension until June 30, 2010 of the Transaction Account Guarantee (TAG) Program (a component of the FDIC’s Temporary Liquidity Guarantee Program, originally set to expire December 31, 2009), and a modified fee structure. The FDIC adopted Alternative B (with slight modification), one of two alternatives proposed in its June 23 Notice of Proposed Rule Making. Alternative A would have preserved the December 31, 2009 expiration date of the TAG Program

In addition to extending the TAG program through the first half of 2010, the final rule (i) increases the annualized assessment fee that applies during that six-month period from 10 basis points to either 15 basis points, 20 basis points, or 25 basis points depending on the institution’s Risk Category, and (ii) provides a one-time, irrevocable opportunity for currently participating entities to opt out of the TAG program effective on January 1, 2010. In order to opt-out, a participating entity must submit an email to the FDIC no later than November 2, 2009 that meets all of the requirements of 12 CFR 370.5(g)(2).

Although the FDIC received several comments explicitly supporting Alternative A under the "generally shared" opinion that financial market volatility and risk aversion "have moderated since the FDIC implemented the TAG program in the fall of 2008," the FDIC "believes that the better alternative" was to extend the TAG Program given that most commenters that supported Alternative B "generally expressed a belief that, despite vast improvement since the fall of 2008, the economy has not yet stabilized to the point that depositors would be comfortable having large uninsured or non-guaranteed transaction balances on deposit with smaller insured depository institutions or community banks." Likewise, FDIC staff advocated [http://www.fdic.gov/news/board/aug26no3.pdf] for the FDIC Board to adopt the final rule, given that "there are still significant portions of the banking industry, particularly in regions still suffering the most from recent economic turmoil, that may need the benefits of the TAG program beyond the end of the year."

Currently, over 7,100 insured depository institutions participate in the TAG program, and the FDIC has "guaranteed an estimated $700 billion of deposits in noninterest-bearing transaction accounts that would not otherwise be insured."