Tommy Warren Sent: Wednesday, November 12, 2008 2:22 PM To: Comments Subject: RIN #3064-AD37
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.
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
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.
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.
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.
for your consideration of our questions and comments.
Chief Financial Officer
Pinnacle Bank of South Carolina
Greenville, SC 29606