FDIC Federal Register Citations

From: Tommy Warren
Sent: Wednesday, November 12, 2008 2:22 PM
To: Comments
Subject: RIN #3064-AD37

Pinnacle Bank of South Carolina is a de novo bank formed in 2006 with approximately $100 million in assets.  We have regularly used fed funds purchased during 2008, with average borrowing of approximately $3 million during the first nine months of the year (with a peak of over $6 million).  We have not had any problem arranging such borrowings during the current year. As a result of one large short term deposit by a corporate customer, we had no unsecured borrowings as of September 30, 2008. 

This letter will present some questions and/or concerns we have regarding the interim rule for the Temporary Liquidity Guarantee Program.  We appreciate the work the Treasury and regulatory agencies have done in an attempt to open up the capital and liquidity markets and believe many of the steps taken and proposed are beginning to work.  We offer the following questions and comments: 

We read the basis for the determination of the 75 basis point fee in the proposed rule.  While we understand the rationale, we believe the fee is excessive, especially as it relates to federal funds purchased in a 1% fed funds environment.  We would request consideration of a lower fee for these generally less risky, overnight borrowings. 

We are extremely concerned about the ability to meet the documentation requirements for the debt guarantee program. In our particular situation, we have three correspondents that provide fed funds lines to us.  Our primary correspondent automatically sweeps our account with them and provides a feds funds line.  The other two correspondents provide funds upon request.  We understand we will be able to apply for a guarantee with the amount to be determined by the FDIC.  We have also been told the amount that would be considered would probably be 1% to 2% of assets.  Assuming we only have a $2 million guarantee and our primary correspondent automatically sweeps our account, how do we disclose “in writing and in a commercially reasonable manner, what debt it is offering and whether the debt is guaranteed….”?  We do not know the sweep amount until near the end of the day.  Do we have to fax a letter every day?  What if we decide to use another correspondent because of a difference in interest rates, etc.?  Do we have to tell them which part is guaranteed and which part is unguaranteed on a daily basis?  Later in the document, the rules states the borrowing “must be evidenced by a written agreement, contain a specified and fixed principal amount to be paid on a date certain, and not be subordinated to another liability.”  That language and other requirements later in the document appear to us to require a written document, detailing the guaranteed and the unguaranteed portions.  Such requirements would make management of the program extremely difficult.  Such difficultly would be greatly magnified if we were a larger institution doing business with many institutions. 

We participated in some of the FDIC question and answer sessions and heard a great deal of concern of these rules creating market pricing differences between unguaranteed lines and guaranteed lines.  While we acknowledge the FDIC is not responsible for marketplace pricing, we are concerned the program will create great difficulties in establishing benchmark pricing.  Of greater concern is that the rule may effectively eliminate, or at least reduce, the availability of unguaranteed lines.  If that were to occur, the proposal that sought to increase liquidity would serve to greatly reduce it.  In our case, we may have over 80% of our fed funds lines (assuming we are approved for $2 million) eliminated or moved to a higher pricing tier.

 Thank you for your consideration of our questions and comments.

Tommy Warren
Chief Financial Officer
Pinnacle Bank of South Carolina
Greenville, SC  29606