June 24, 2010
Authored by: Barry Hester and Bryan Cave
On June 22, 2010, the FDIC Board of Directors adopted a final rule extending the Transaction Account Guarantee (TAG) component of the Temporary Liquidity Guarantee Program (TLGP) through December 31, 2010, for insured depository institutions (IDIs) currently participating in the program. The TAG program guarantees all funds held at participating IDIs in qualifying noninterest-bearing transaction accounts beyond the recently increased $250,000 deposit insurance limit. This final rule preserves the interim rule’s assessment fee structure and 25 basis-point interest rate limit for NOW accounts guaranteed by the program.
The final rule also provides that, without additional rulemaking, the Board may further extend the program for a period not more than a year (until and including December 31, 2011) if it finds that economic conditions and circumstances that led to the establishment of the program are likely to continue beyond December 31, 2010, and that extending the program for an additional period of time will help mitigate or resolve those conditions and circumstances. The FDIC must publish notice of any such further extension by October 29, 2010. This further extension language is the minor and only departure from the interim TAG rule issued on April 13, 2010. The interim rule provided that the FDIC could extend the program on the same grounds and without additional rulemaking “for an additional year.”
Under the interim rule, participating IDIs were permitted to opt-out of the TAG program by email notice to the FDIC by 11:59 p.m., Eastern Time, April 30, 2010. The FDIC indicates that 441 institutions took advantage of this opt-out opportunity and indicated their intent to exit the program as of July 1, 2010. A participating IDI’s decision to remain in the extended TAG program obligates it to continue its participation through December 31, 2010, or for the duration of the program, if the Board further extends the TAG program as set forth in the final rule.
The interim rule reduced the maximum interest rate for NOW accounts guaranteed under the program from 50 to 25 basis points. During the rule’s review period, the FDIC considered comments that this interest rate cap may not align with prevailing rates by region or with future interest rates, but it elected to retain this limit for qualifying NOW accounts as representative of the prevailing nationwide interest rates for such accounts at this time and for the relatively short duration of the program’s extension.
Lobby and Website Disclosure
The interim rule required IDIs to update lobby and website disclosures on or before May 20, 2010, to reflect their continued participation, pending exit, or non-participation in the TAG program. As the final rule does not change any of the elements of these required disclosures, no updates are necessary for IDIs that implemented updates pursuant to the interim rule. The rules require that each IDI 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 TAG program. These disclosures must be set out in simple, readily understandable text, and the FDIC provides the following sample language:
For Participating Institutions
[Institution Name] is participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 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 Elected to Opt-out of the Extended Transaction Account Guarantee Program Effective on July 1, 2010
Beginning July 1, 2010 [Institution Name] will no longer participate in the FDIC’s Transaction Account Guarantee Program. Thus, after June 30, 2010, 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.
Participation in and Future of the Program
An estimated 6,300 or 80% of all IDIs currently participate in the TAG program. Of the $356 billion in deposits held by institutions subject to the FDIC’s TAG guarantee as of March 31, 2010, $280 billion represented amounts above the insured deposit limit. Among current program participants, the average TAG account size is $1.04 million. The FDIC estimates that about 509 institutions rely on TAG accounts to fund 10 percent or more of their assets.
The long-term future of the TAG guarantee is tied to the pending financial reform bill in Congress. The conference committee reconciling the House and Senate versions of the bill has agreed to make permanent the $250,000 increase in per depositor, per IDI insurance limit and is considering a two-year statutory extension of the TAG program.