Subsequent events have been evaluated through June 14, 2010, the date the financial statements are available to be issued.
FDIC Guaranteed Debt of Limited Liability Companies
During 2010, the FDIC in its corporate capacity offered guarantees on $997.4 million in purchase money notes issued by newly-formed limited liability companies (LLCs). The terms of the guarantees expire no later than the final note maturing in 2020. The LLCs were created to dispose of $4.6 billion of performing and non-performing commercial and residential real estate loans as well as related assets purchased from multiple receiverships (multibank structured transactions). Private investors purchased 40-50 percent ownership interests in the LLCs, with the receiverships holding the remaining 50-60 percent equity interest. In exchange for the guarantees, the DIF expects to receive estimated fees totaling $29.0 million. Based upon modeling scenarios, the cash flows from the assets of each LLC provide sufficient coverage to defease the debts by their maturity dates. Therefore, the estimated loss to the DIF from these guarantees is zero.
During 2010, FDIC-guaranteed notes issued by three LLCs to receiverships during 2009 and 2010 were sold to private investors. The timely payment of principal due on the notes will continue to be fully guaranteed by the FDIC (see Note 8).
FDIC Guaranteed Debt of Notes
On March 12, 2010, the FDIC issued $1.8 billion of notes backed by approximately $3.6 billion of residential mortgage-backed securities (RMBS) from seven failed bank receiverships. The underlying securities were sold to a statutory trust, which subsequently issued two series of senior notes. The notes mature in 2038 and 2048 and are backed by the RMBS. Investors included banks, investment funds, insurance funds, and pension funds. The $1.8 billion in proceeds will go to the seven failed bank receiverships and eventually be used to pay creditors, including the DIF. This will maximize recoveries for the receiverships and recover substantial funds for the DIF. The FDIC, in its corporate capacity, will fully and unconditionally guarantee the timely payment of principal and interest due and payable on the senior notes. In exchange for the guarantees, the DIF expects to receive monthly payments based on the outstanding principal balance of the senior notes.
Amendment of the TLGP to Extend the Transaction Account Guarantee Program (TAG)
An Interim Rule with request for comments, issued on April 19, 2010, amends the TLGP to extend the expiration date for the TAG from June 30, 2010 to December 31, 2010, and grants the FDIC discretion to extend the program to December 31, 2011, without additional rulemaking, if economic conditions warrant such an extension. Assessment rates for institutions participating in the TAG remain unchanged under the interim rule. Additionally, the interim rule would: 1) require TAG assessment reporting based on average daily account balances; 2) reduce the maximum interest rate for qualifying negotiable order of withdrawal (NOW) accounts guaranteed pursuant to the TAG to 0.25 percent from 0.50 percent; 3) provide an irrevocable, one-time opportunity for institutions currently participating in the TAG to opt-out of the program, effective on July 1, 2010; and 4) establish conforming disclosure requirements for institutions that opt-out of and those that continue to participate in the extended program.
Proposed Revision of the Deposit Insurance Assessment System
On April 13, 2010, the FDIC Board of Directors approved for issuance a Notice of Proposed Rulemaking on Assessments (NPR) to revise the assessment system applicable to large banks. The NPR would eliminate risk categories and the use of long-term debt issuer ratings, and replace the financial ratios currently used with a scorecard consisting of well-defined financial measures that are more forward looking and better suited for large institutions. Additionally, the proposal would alter the assessment rates applicable to all insured depository institutions to ensure that the revenue collected under the proposed assessment system would approximately equal that under the existing assessment system.
2010 Failures Through June 14, 2010
Through June 14, 2010, 82 insured institutions failed with total losses to the DIF estimated to be $16.8 billion.