On June 23, 2009, the FDIC voted to seek comment on whether to extend the Transaction Account Guarantee under beyond its current expiration date of December 31, 2009.  The Transaction Account Guarantee provides unlimited deposit insurance for funds held in noninterest-bearing accounts (as well as IOLTA accounts and certain NOW accounts).  The Transaction Account Guarantee is part of the FDIC’s Temporary Liquidity Guarantee Program.

The FDIC proposal offers two alternatives:

  • allow the guarantee to expire as scheduled on December 31, 2009; or
  • extend the guarantee through June 30, 2010, with increased fees.

If the guarantee is allowed to expire, then insurance limits will revert to the $250,000 threshold.

If the guarantee is extended for six months through June 30, 2010, then the FDIC proposes to also increase the fee to 25 basis points annualized (from the 10 basis points currently charged).  In light of this increase, the FDIC proposes that it would give all institutions a single opportunity to opt out of the extended guarantee program (and thereby avoid the increased cost).

The FDIC is providing a 30-day comment period to consider whether or not to extend the guarantee for non-interest bearing accounts.  While every rule proposal is subject to change, in this case the FDIC has explicitly proposed two completely different alternatives.   Accordingly, comments are likely to be very important.

The FDIC has also specifically requested comment on the following items:

  • whether six months is the appropriate extension period;
  • whether the permissible interest rate to be paid on NOW accounts covered by the program should be reduced; and
  • whether the fee increase to 25 basis points annualized is appropriate.