Federal Deposit
Insurance Corporation

From: David M. Penoli [mailto:penolid@lonestarnationalbank.com]
Sent: Wednesday, November 12, 2008 5:03 PM
To: Comments Cc: Jabier Rodriguez; David Deanda Subject: Temporary Liquidity Guarantee Program.

Greetings,

I appreciate the opportunity to comment on this program. First, I would like to commend the personnel at the FDIC on their hard work in promoting this program, analyzing its benefits and sharing the information. I participated in several of the Banker calls when it was discussed and believe the exchanges were timely and informative:

My comments are in regard to the “debt guarantee program”, “guaranteed newly-issued senior unsecured debt”. In viewing the program from the view point of an institution that is very liquid and well capitalized, it appears that the guaranteed debt program may work against a strong institution.

To begin with those institutions without any or zero unsecured senior debt at 9/25/08 are put into an undefined decision making process as a result. As per the FAQ’s “If a participating entity had no senior unsecured debt on September 30, 2008, the entity may seek to have some amount of debt covered by the debt guarantee component of the TLGP program. The FDIC, after consultation with the appropriate Federal banking agency, will decide whether, and to what extent, such requests will be granted on a case by case basis.”

It appears to me that there is some unintended unfairness in the debt program. If you have debt it will be guaranteed, no additional process is needed. If you had no debt and decide to issue debt or buy funds temporarily after 6/30/09, then you need a formal approval process with no guarantee of approval.

This difference may create two overnight lending markets, one to banks who borrow or purchase funds overnight or on term who are guaranteed and one market for banks who did not have debt who after June 30 2009 would need to borrow or purchase funds overnight. If the same correspondent bank can sell funds to a guaranteed bank vs. funds to a non-guaranteed bank, why would they sell funds for the same price? In other words opting out could drive the banks cost to borrow up in the future. It is very possible that even with strong liquidity that a bank would be in the market for purchased funds temporarily. In addition, and conversely, a bank currently may not need the guarantee in which to negotiate a funds purchase agreement with a correspondent bank, and opts out of the guarantee program, but sometime in the future the correspondent decides that all overnight funds lending is going to require a FDIC guarantee, by opting out the bank will be at a disadvantage.

I would like to see this issue more clearly and specifically defined in the regulation and before the December 5, 2008 opt out date. I realize that a bank can purchase the option of either issuing guaranteed or non guaranteed debt for a one time fee of 37.5 basis points of the outstanding debt as of 9/30/08, and that may be the option to take, as 37.5 basis times zero would be zero. The cost to opt into a choice would be nothing, and then the bank could decide whether to issue guaranteed or non guaranteed debt in the future. “ Sec. 370.3 (f) “ a participating entity may also notify the FDIC that it has elected to issue non-guaranteed debt with maturities beyond June 30, 2012, at any time, in any amount, and without regard to the guarantee limit.” It seems that a bank with no debt can hedge its options at zero cost, thus be in the guarantee program if necessary, or by taking this option issue non guaranteed debt. It would be helpful if this was further explained.

Thank you
David M. Penoli | EVP & Chief Operating Officer 206 West Ferguson Ave. | Pharr, TX 78577 Phone (956) 984-2866 | Fax (956) 984-2891