Yesterday, the SEC’s Division of Corporation Finance issued an important interpretive letter relating to the FDIC’s Debt Guarantee Program component of its Temporary Liquidity Guarantee Program. In the letter, the staff cleared the way for bank holding companies to issue senior unsecured debt in connection with the Temporary Liquidity Guarantee Program.

While debt and equity securities issued by banks and savings associations are already exempted under the Securities Act, debt and equity securities issued by their holding companies are not and must either be registered with the SEC or utlize a private placement or other exemption from registration. Therefore action was necessary to provide assurances to bank and savings and loan holding companies that they would be able to issue FDIC-guaranteed debt without having to tap their shelf registered securities.

As the FDIC noted in its letter requesting confirmation of its understanding, Section 3(a)(2) of the Securities Act exempts from registration any securities guaranteed by the United States. The FDIC argued, and the SEC staff concurred, that under the FDIC's Final Rule “senior unsecured debt issued between October 14, 2008 and June 30, 2009 by eligible entities that have not opted out of the Program will be fully and unconditionally guaranteed by the FDIC through June 30, 2012.” Therefore, as the FDIC is an instrumentality of the United States, under Section 3(a)(2) of the Securities Act, this secured debt will be exempt from registration. In the unlikely event that a holding company were to issue debt that matures after expiration of the FDIC's guarantee, both the FDIC and the SEC took the position that the debt securities would not be exempt under Section 3(a)(2). Market practice for issuances of FDIC-guaranteed bank and holding company debt is still developing, but the FDIC's and the SEC's letters should provide useful comfort both as to the breadth of the FDIC's guarantee and the availability of a powerful exemption from SEC registration.