From: Amanda Swoverland [mailto:firstname.lastname@example.org]
Sent: Friday, October 24, 2008 3:25 PM
Subject: RIN #3064-AD37
This e-mail is to comment on the unsecured debt guaranty program proposed
under the Temporary Liquidity Guaranty Program.
While our bank recognizes the intent and purpose behind the program is
good, the major concern with the program is that it will cause banks that
were not having liquidity issues, to have liquidity issues. This is best
illustrated through an example.
Lets assume our bank has arrangements with three different banks that we
can draw on at any time to purchase Fed Funds. The amount we have available,
unsecured, is $15 million dollars. At this time we pay the current market
rate for what we borrow. Our banks have not cited any issues with us
continuing to buy and sell funds with them.
However, based on the proposal, as of 9/30/2008 we only had $4million
outstanding unsecured debt. Therefore, the FDIC guaranty would only apply to
$5 million dollars. We are concerned that the banks we currently work with
may say they only want to borrow to the amount of the guaranty, thus capping
our ability to borrow at $5 million dollars. We understand that we can
contact the FDIC to request a higher cap, but this still may not be as high
as the $15,000,000 we currently have available. Not only will this
potentially reduce the amount of Fed Funds we can purchase by $10 million
dollars, our cost to borrow has just increased by 75 basis points. Both
liquidity and earnings will suffer. It is our hope that the banks we
currently have arrangements with will continue to work with us as they have
in the past; however, the reality is this program will probably impact how
we do business today.
In addition, the date banks must give notice to opt-out of the program is
too close to the end of the comment period. The costs (reputational and
financial) associated with these programs are significant and bank
management should have more than a few days to consider their options before
deciding to participate in the program.
The final guidance the FDIC issues regarding these programs is critical.
Since information on who is and is not participating will be public based on
the proposed rule, we believe the FDIC should take steps to educate the
public and other banks on why a bank may choose not to participate so that
it is not perceived as negative. The FDIC should encourage financial
institutions to maintain their current standards for lending and use the
guaranty program as a way to further offer their programs to banks they may
have not otherwise worked with. The intent of these programs should be to
help those banks who are struggling and need the guarantees, not punish
those banks who have not had issues.
Finally, as it relates to deposit insurance. A major issue banks are
dealing with right now relates to insurance companies offering excess
insurance bonds. This product has almost disappeared and was something many
banks relied upon for their public and non-profit customers. We would like
the FDIC to consider offering an excess insurance bond that banks can
purchase. This would be a very non-complex way for a bank to provide excess
insurance and not require customers to be in a certain type of account
(non-interest bearing) or having banks start getting into programs that are
considered brokered deposits just to get the extra insurance.
Amanda Swoverland, CRCM
BSA/Compliance Officer, AVP
1740 Rice Street
Maplewood, MN 55113