August 28, 2009
Authored by: Robert Klingler
Update: On April 13, 2010, the FDIC granted a further extension until December 31, 2010.
On August 26, 2009, the FDIC extended the Transaction Account Guarantee (TAG) portion of the Temporary Liquidity Guarantee Program for six months, through June 30, 2010. In addition to extending the expiration date of the TAG program, the FDIC’s final rule (1) increases the assessment fee for participation; and (2) provides an opportunity for participating institutions to opt out of the program as of January 1, 2010 (and thereby avoid the additional assessments).
All currently participating institutions have until November 2, 2009 to determine whether to continue in the program (at increased cost) or opt out of the program. Attorneys in Bryan Cave’s financial institutions practice can discuss the advantages and disadvantages of opting out for particular financial institutions.
Funds held in non-interest bearing demand deposit accounts (as well as NOW accounts that are obligated to pay less than 50 basis points and IOLTA accounts) will be fully guaranteed by the FDIC for participating entities through June 30, 2010.
The FDIC received comments supporting no extension, as well as supporting extensions for up to three years. The FDIC determined a six-month extension of the TAG program “will provide the optimum balance between continuing to provide support to those institutions most affected by the recent financial and economic turmoil and phasing out the program in an orderly manner.”
Beginning January 1, 2010, participants in the TAG program will be subject to increased quarterly fees. The amount of the assessment will depend on the institution’s Risk Category rating assigned with respect to regular FDIC assessments. The fee will continue to be assessed only on the amount of deposits that exceed the existing deposit insurance limits.
Institutions in Risk Category I (generally well-capitalized institutions with composite CAMELS 1 or 2 ratings) will pay an annualized assessment rate of 15 basis points. Institutions in Risk Category II (generally adequately capitalized institutions with composite CAMELS 3 or better) will pay an annualized assessment rate of 20 basis points. Institutions in Risk Category III or IV (generally under capitalized or composite CAMELS 4 or 5) will pay an annualized assessment rate of 25 basis points. (Through December 31, 2009, the fee will remain an annualized 10 basis point assessment for all participating institutions.)
Right to Opt-Out
Currently participating institutions are being given a one-time, irrevocable, opportunity to affirmatively opt out of the TAG program. Institutions that previously opted out of the TAG program may not change their election at this time.
If a participating institution desires to remain in the TAG program, no action is required. However, such an institution should update its lobby and website disclosures to reflect the June 30, 2010 extension.
If a participating institution desires to opt out, it must send an e-mail to firstname.lastname@example.org no later than November 2, 2009 that meets all the requirements of 12 CFR 370.5(g)(2), and post a prominent lobby and website notice notifying depositors that funds held in noninterest-bearing transaction accounts will not longer be fully guaranteed. 12 CFR 370.5(g)(2) generally requires the e-mail to have a subject line of “TLGP Election to Opt Out – Cert. No. ___” and to include:
- Institution Name;
- FDIC Certificate number;
- City, State and ZIP;
- Name, telephone number and e-mail address of contact person;
- A statement that the institution is opting out of the Transaction Account Guarantee program effective January 1, 2010; and
- Confirmation that the institution will, no later than November 16, 2009, provide the required lobby and website disclosure.
The FDIC states that it will send an e-mail reply confirming receipt of each institution’s opt-out election upon receipt of a conforming e-mail.
Lobby and Website Disclosure
The FDIC regulations require that each institution that offers noninterest-bearing transaction accounts post a prominent notice in the lobby of its main office, each domestic branch and, if it offers Internet deposit services, on its website clearly indicating whether the institution is participating in the Transaction Account Guarantee program. The regulations require that the disclosure be provided in simple, readily understandable text, and provide the following samples:
For Participating Institutions
[Institution Name] is participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through June 30, 2010, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Coverage under the Transaction Account Guarantee Program is in addition to and separate from the coverage available under the FDIC’s general deposit insurance rules.
For Participating Institutions that Elect to Opt out of the Extended Transaction Account Guaranty Program Effective on January 1, 2010
Beginning January 1, 2010 [Institution Name] will no longer participate in the FDIC’s Transaction Account Guarantee Program. Thus, after December 31, 2009, funds held in noninterest-bearing transaction accounts will no longer be guaranteed in full under the Transaction Account Guarantee Program, but will be insured up to $250,000 under the FDIC’s general deposit insurance rules.
For Non-Participating Institutions
[Institution Name] has chosen not to participate in the FDIC’s Transaction Account Guarantee Program. Customers of [Institution Name] with noninterest-bearing transaction accounts will continue to be insured for up to $250,000 under the FDIC’s general deposit insurance rules.