The Federal Deposit Insurance Corporation (“FDIC”) has issued additional information on its Temporary Liquidity Program (“Program”) in the form of a Frequently Asked Questions release on its website, www.FDIC.gov/tlgp. The Program, which is the subject of a Kilpatrick Stockton Legal Alert dated October 14, 2008, involves (i) an FDIC guarantee of certain newly issued senior unsecured debt issued by institutions or their holding companies on or after October 14, 2008 and before June 30, 2009 and (ii) unlimited deposit insurance coverage for non-interest bearing deposit transaction accounts. All FDIC-insured institutions are covered by both aspects of the Program, subject to the ability to opt out within 30 days of the Program’s October 14 commencement date.
The FDIC has indicated that a form will be made available on its website and on FDICconnect that institutions can use to opt out of either or both aspects of the Program during the 30 day window. Institutions may not opt out after the initial 30 day period. Also, an institution cannot rejoin either Program once it has opted out. A bank may opt out of the non-interest bearing transaction insurance aspect of the program for unlimited deposit insurance while its holding company parent remains in as to the debt guarantee aspect.
The limits on FDIC guaranteed debt under the Program (i.e., 125% of the amount of such debt outstanding as of September 30, 2008) applies on a per eligible entity basis, not on a consolidated holding company basis. If an entity had little or no senior unsecured debt on September 30, 2008, it may still be able to issue debt under the Program in an amount to be determined in consultation with the FDIC and the entity’s primary federal regulator.
The non-interest bearing transaction account coverage will include funds in all such accounts in domestic offices of participating institutions and will last through December 31, 2009. The coverage is over and above the existing $250,000 coverage. The FDIC used an example of a customer with a $500,000 non-interest bearing transaction account and a $250,000 certificate of deposit in a bank. In that case, the FDIC would fully insure the total of $750,000.
The 10 basis point annual rate surcharge for the unlimited non-interest bearing transaction account coverage would be applied to such accounts over $250,000 and be collected through the FDIC’s normal assessment mechanisms. However, institutions would not be assessed on amounts that are otherwise insured. For example, the FDIC indicated that if a trustee holds a non-interest bearing transaction account for $2 million but each beneficiary has a balance that is less than $250,000, then the institution would not have a non-interest bearing transaction account for purposes of the extra coverage.
The FDIC encourages participating institutions to use funds under the Program to grant loans, but there will be no express requirement that they do so. The FDIC is attempting to use existing regulatory reporting procedures to implement the Program. However, the agency indicated that some additional reporting is likely to be necessary, particularly with respect to the senior unsecured debt guarantee. The FDIC intends to make additional information on the Program available as it addresses issues that arise.