On the evening of Thursday, December 4, 2008, the FDIC circulated an updated notice regarding the definition of “senior unsecured debt” as it applies to interbank CDs.  A complete copy of that notice is included at the end of this post.

The notice may cause some confusion, as we believe most banks are unlikely to have any relevant interbank CDs, insured or otherwise.  Only the amount of certificates of deposits owed to non-affiliated banks in excess of $250,000 should be included in the amount of senior unsecured debt outstanding as of September 30, 2008.

The definition of “senior unsecured debt” contained in the final regulations does include “U.S. dollar denominated certificates of deposit owed to an insured depository institution.”  However, there are a number of exceptions that effectively swallow this rule.

First, debt “owed to an insured depository institution” includes only debt owed to the institution “solely in its own capacity and not as agent.”  As a result, brokered deposits or deposits placed through the CDARS network do not meet the definition of senior unsecured debt and should neither be included in the amount of senior unsecured debt outstanding as of September 30, 2008 nor be eligible for the FDIC guarantee.

Second, debt to “affiliates, including parents and subsidiaries, and institution-affiliated parties” are excluded from the definition of senior unsecured debt.  As a result, any CDs between affiliated banks should be excluded from the amount of senior unsecured debt outstanding as of September 30, 2008, regardless of the amount of such CDs.

Third, as noted in the FDIC notice, certificates of deposits owed to non-affiliated banks should only be included to the extent the CDs exceeded FDIC insurance limits as of September 30, 2008.

The FDIC Notice

IMPORTANT NOTICE REGARDING INTERBANK CDs and the FDIC’s TEMPORARY LIQUIDITY GUARANTEE PROGRAM

The FDIC has interpreted the definition of senior unsecured debt as it applies to interbank CDs.  Insured depository institutions are instructed to include only the uninsured portion of interbank CDs in their determination of the total amount of senior unsecured debt outstanding as of September 30, 2008, reported on their Temporary Liquidity Guarantee Program Election Form.

If an insured depository institution has already submitted its Election Form, and included insured portions of interbank CDs in its determination of the total amount of senior unsecured debt outstanding as of September 30, 2008, it must revise the amount of senior unsecured debt on its Election Form by submitting an email with the subject line “TLGP Election Form Correction Requested – Cert No. XXXXX” to DCAS@fdic.gov.

The email must include the following:

  • Bank Name
  • FDIC Certificate No.
  • City, State, Zip
  • Contact name and contact information (telephone number, e-mail address)
  • The new senior unsecured debt amount.

In addition, an Election Form with handwritten corrections in ink, signed and dated by the CFO (or equivalent) must be completed and either scanned and attached to the email or faxed to DCAS at (972) 761-2213.