November 6, 2008
Authored by: Robert Klingler
On November 3, 2008, the FDIC extended the deadline for opting out of either component of the Temporary Liquidity Guarantee Program from November 12, 2008 until December 5, 2008. Failure to opt out by December 5, 2008 will constitute a decision to continue to participate in both the debt guarantee and transaction account guarantee programs. (Based on conversations with representatives of the FDIC on Monday, the FDIC does not expect any institution to opt out of the non-interest bearing transaction account guarantee program.)
Decisions to opt out or remain in are irrevocable, and will be made via the FDIConnect system. Election forms will be available starting November 12, 2008, and will require certification by the institution’s Chief Financial Officer.
All eligible entities within the same holding company structure, including the holding company itself, must make the same decision regarding continued participation in either or both programs. Eligible entities that do not opt out of the debt guarantee program must report the amount of outstanding senior, unsecured debt as of September 30, 2008, that is scheduled to mature on or before June 30, 2009.
The FDIC has also published a Sample Election Form, Election Form Instructions and Guidance for Election Options and Reporting Requirements.
Only the first 30 days of each program continue to be without charge. However, those institutions that opt out by December 5, 2008 will not be required to pay assessments. Institutions that do not opt out will be required to pay assessments for covered debt and transaction accounts starting on November 13, 2008, with a limited exception for overnight debt instruments issued between November 13, 2008 and December 6, 2008, for which no assessments will be collected.
Institutions participating in the debt guarantee program must report the par value of their outstanding senior unsecured debt as of September 30, 2008, that is scheduled to mature on or before June 30, 2009. The term “senior unsecured debt” means unsecured borrowing that: (a) is evidenced by a written agreement; (b) has a specified and fixed principal amount to be paid in full on demand or on a date certain; (c) is non-contingent; and (d) is, not by its terms, subordinated to any other liability. Senior unsecured debt includes, for example, federal funds purchased, promissory notes, commercial paper, and unsubordinated unsecured notes. Convertible debt, capital notes, and debt payable to affiliates are excluded.
The FDIC has not provided any additional guidance on the process for requesting a waiver to issue guaranteed debt in the event that the institution did not have any senior unsecured debt outstanding as of September 30, 2008. The interim rule provides that the FDIC, after consultation with the appropriate federal banking agency will make a case-by-case decision as to whether, and to what extent, such an institution may issue guaranteed debt. In extending the deadline, the FDIC has specifically sought comments on whether to establish an alternative guarantee cap, e.g., a percentage of total liabilities, or an average of outstanding senior unsecured debt over some period of time, for those eligible entities that had no or de minimis amounts of senior unsecured debt outstanding on September 30, 2008.
The FDIC is also specifically seeking comments on whether to charge different premium rates for Fed Funds and other short-term borrowings versus longer term borrowings.