United States Government Actions to Strengthen Market Stability and FDICs Temporary Liquidity Guarantee Program
The Federal Deposit Insurance Corporation's (FDIC) Temporary Liquidity Guarantee
Program will operate as set out below.
Purposes of the Action
The U.S. Government is implementing a series of initiatives to strengthen market stability,
improve the strength of financial institutions, and enhance market liquidity. These collective
actions, including the Federal Deposit Insurance Corporation's guarantee program, will help
restore market confidence and better enable the functioning of our credit markets. The FDIC
program includes guaranteeing newly issued senior unsecured debt of banks and thrifts and
certain holding companies, and providing full coverage of non-interest bearing deposit
This initiative is being implemented under the powers granted to the FDIC to mitigate
significant risks to our economic system and to address a general lack of liquidity among
financial institutions. The FDIC's action is a response to the broad uncertainty that is causing
banks to be unwilling to lend generally and especially the vital activity of banks lending to
The additional protection for non-interest bearing deposit transaction accounts will be
especially beneficial to smaller institutions, which is important to the continued health and
viability of community banks.
Eligible institutions include FDIC-insured depository institutions and certain bank, financial,
and savings and loan holding companies that engage only in activities that are permissible for
financial holding companies to conduct under section 4(k) of the Bank Holding Company
Act. For those institutions that currently have no unsecured debt, special eligibility
arrangements will be considered on a case-by-case basis.
Scope and Term of Guarantee
The FDIC's guarantee would apply only to the following liabilities:
- Newly issued senior unsecured debt issued between October 14, 2008, and June 30, 2009, including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Prepayment of term debt instruments expiring during this period and replacement with FDIC-guaranteed debt will not be allowed. The amount of debt covered by the guarantee may not exceed 125 percent of debt that was outstanding as of September 30, 2008, that was scheduled to mature before June 30, 2009. For eligible debt issued on or before June 30, 2009, coverage would only be provided until June 30, 2012, even if the liability has not matured.
- Effective immediately, funds held by FDIC-insured banks in non-interest-bearing transaction deposit accounts until December 31, 2009.
Period during which guarantee will be issued
Initially, all FDIC-insured institutions will be covered under this program for a period of 30
days. Prior to the end of this period, banks must inform the FDIC whether they will opt-out
of either part of the program. If a bank opts out of one or both parts of the program, the
guarantee or insurance will expire at the end of the 30-day period, regardless of the term of
any instrument. The ability of banks to issue guaranteed debt under this program expires on
June 30, 2009.
Banks availing themselves of the guarantee program will be subject to supervisory oversight
to prevent rapid growth or excessive risk-taking. Eligibility and use will be determined by
the FDIC in consultation with the institution's primary regulator.
Fees for coverage would be waived for the first 30 days. After the first 30 days, a fee would
be imposed as follows:
- For eligible senior unsecured debt, an annualized fee will be collected equal to 75 basis points multiplied by the amount of debt guaranteed under this program.
- For non-interest bearing transaction deposit accounts, a 10 basis point surcharge on the institution's current assessment rate would be applied to deposits not otherwise covered by the existing deposit insurance limit of $250,000. Fees for the 10 basis point surcharge on the non-interest bearing transaction accounts over $250,000 will be collected through the normal assessment cycle.
- These fees will be accounted for separately on the books and records of the FDIC.
- A special assessment will be collected to cover any losses not covered by the fees to ensure no impact on the Deposit Insurance Fund or the U.S. taxpayer.
Eligibility of guaranteed instruments as collateral
The FDIC is recommending the instruments guaranteed under this program are eligible to be
delivered as collateral for borrowing and will coordinate with the appropriate regulatory