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FDIC Updates FAQ on Temporary Liquidity Guarantee Program

On November 7, 2008, the FDIC updated its Frequently Asked Questions on the Temporary Liquidity Gurantee Program.  New questions are presented in bold type.  The FAQ provides additional guidance in connection with the interim rule implementing the Temporary Liquidity Guarantee Program.

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Assistant Secretary Kashkari Provides Update on TARP Capital

In comments today at the SIFMA Summit, Interim Assistant Secretary for Financial Stability, Neel Kashkari, gave an update on the Treasury Department’s implementation of the TARP Capital program.  As noted by Mr. Kashkari, the TARP Capital program was announced just days ago, and while much work remains to be done, incredible progress has been made in implementing the program so far.

Two Policy Objectives

Mr. Kashkari emphasized two policy objectives:

  1. The TARP Capital program is intended to strengthen our financial system by increasing the capital base of a broad array of institutions.
  2. The TARP Capital program aims to increase the flow of financing to businesses and consumers to support our economy.

Application Timing and Availability of Funds

Mr. Kashkari noted that Treasury believes there is sufficient capital allocated for all qualifying institutions and emphasized that the program is not being implemented on a first-come, first-served basis.  Mr. Kashkari also emphasized that the Treasury is working hard to finalize and publish the required legal documents so private banks can participate on the same economic terms as public banks.  He noted that the deadline will be extended for private banks.

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The Shifting Boundaries of the TARP Capital Purchase Program

On November 7, 2008, Katherine Koops presented The Shifting Boundaries of the TARP Capital Purchase Program at the Georgia Bankers Association’s Economic Stabilization Act and Bank Capital Workshop.  The presentation addresses the following questions:

  • Are we eligible?
  • What would we be issuing?
  • Should we participate?
  • How do we apply?
  • Are there any lead time issues?
  • How does this affect executive compensation?
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GBA Communications Guide for TARP Capital Program

November 9, 2008

Categories

The Georgia Bankers Association has published a Communications Guide on the Treasury’s Capital Purchase Program that provides useful talking points regarding a bank’s decision on participating in the TARP Capital program.

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TARP Jokes

TARP Jokes

November 6, 2008

Authored by: Bryan Cave Leighton Paisner

Q. What did Treasury use to put the Capital Purchase Program together?
A. Duct TARP.

Q. What do you call a bank that’s been turned down by Treasury?
A. TARPooned!

Q. What is a banker’s favorite breakfast food?
A. PopTARPs.

Q. What do you use to remove a bad loan from your books?
A. TARPentine.

Q. Knock Knock
A. Who’s There?
Q. TARP
A. [DOOR SLAMMED IN FACE]

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Federal Reserve TARP Capital Review for Public Member Banks

We are beginning to receive some indication of how the Federal Reserve will be reviewing TARP Capital Applications for public member banks.  As institutions begin to file applications in greater numbers, we believe the review process is starting to gel from a methodological standpoint (although the regulators still say they receive new guidance daily).  We have not yet had any indication as to how consistent this review methodology may be between regulatory agencies.

We understand that the review will generally consist of a 3-part process:

  • First, the regional director of applications risk will serve as an initial point-of-contact person who will review the application and any follow-up materials that may be requested.  The plan is for this initial review period to take approximately 3 days, although this time period could be extended, depending on the circumstances of a particular application and the volume of applications being processed.
  • Second, the application will be passed along to a 5-member panel.  This panel will review the application and make the decision as to whether an “invest” recommendation should be made to Treasury.
  • Finally, Treasury will make its ultimate investment decision, based in large part on the recommendation of the regulators.

The review process, from the filing of an application to an ultimate decision by Treasury to fund, may be completed in as little as 5-7 days, although this process could be drawn out considerably, based on the circumstances.

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FDIC Extends Opt Out Deadline for Temporary Liquidity Guarantee Programs

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.

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Updated Guidance from Regulators

Updated Guidance from Regulators

November 5, 2008

Authored by: Robert Klingler

Over the last several days, we’ve had a number of conversations with the federal banking regulators on TARP Capital applications.  Although this guidance has not proved to be entirely consistent across agencies, we wanted to pass it along as we have it.  We have identified the federal regulatory agency which provided us the guidance, but we generally expect some degree of uniformity across agencies.

In addition to discussing the treatment of non-exchange listed public companies, private companies, and Sub S companies, the Federal Reserve Bank of Atlanta also emphasized that the Treasury Department intends to invest only in entities that are “viable,” with viability being determined on a case-by-case basis.  The OCC has separately provided guidance that, as a rule of thumb, an applicant must be viable without the TARP Capital in order to be approved to received TARP Capital.  Based on our conversations with regulators last week, we continue to believe the best indicator of viability is the ability of the applicant to earn money operationally, i.e. pre-tax and pre-provision, which is also known as “pre pre” earning).

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TARP Capital Decliners and Proxy Statements

We have added two new pages to the site for banks looking to see how other bankers are handling certain TARP Capital issues.  (We’ve always found bankers prefer to listen to other bankers rather than lawyers.)

For examples of press releases of banks that have decided to publicly announce that they will not be participating in the TARP Capital program, see our TARP Capital Decliners.

For examples of proxy statements where banks have decided to seek shareholder approval to put in blank check preferred stock, see our TARP Capital Proxies.

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Non-Exchange Listed, Private and Sub S

We spoke with an official with the Federal Reserve Bank of Atlanta official yesterday who informed us that:

  • Non-exchange-listed public companies are being considered “private companies” or as “not publicly traded” by the Treasury Department; and
  • While the federal banking regulators will continue to review applications by private companies at this time, they have been instructed not to forward such applications to the Treasury Department until further guidance is published by the Treasury Department.
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