We have updated our TARP Map to include the locations of the institutions that received TARP Capital infusions in round 5.
On December 16, 2008, the Treasury announced the completion of the fifth round of TARP Capital infusions. The Treasury purchased a total of approximately $2.5 billion in preferred stock from 28 financial institutions on Friday, December 12, and has now invested a total of $167.8 billion of the $250 billion to be invested under the TARP Capital program.
Wilmington Trust Corporation of Wilmington, Delaware, received the largest infusion of the round, $330 million, while Northeast Bancorp of Lewiston, Maine, received the smallest infusion of the round, $4.2 million.
This round saw five new states, Arkansas, Delaware, Indiana, Maine, and Michigan, join the ranks of states whose institutions have received funds under the TARP Capital program. In total, 36 states and 1 U.S. territory are home to institutions that have recieved TARP Capital infusions.
We have updated our TARP Map to display the locations of the institutions that received infusions in the fifth round.
On December 10, 2008, the Congressional Oversight Panel for Economic Stabilization issued its first report on the Treasury’s implementation of the Troubled Assets Relief Program. On December 11, 2008, the Chair of the Oversight Panel, Harvard Law Professor Elizabeth Warren, sat down with Terry Gross on NPR’s Fresh Air to discuss how taxpayer money is being spent in the financial bailout program. The report and interview give insight into how the political process surrounding the TARP program may affect the program going forward.
The Congressional Oversight Panel has presented ten questions for analyzing the TARP program.
- What is Treasury’s Strategy?
- Is the Strategy Working to Stabilize Markets?
- Is the Strategy Helping to Reduce Foreclosures?
- What Have Financial Institutions Done with the Taxpayers’ Money Received So Far?
- Is the Public Receiving a Fair Deal?
- What is Treasury Doing to Help the American Family?
- Is Treasury Imposing Reforms on Financial Institutions that are taking Taxpayer Money?
- How is Treasury Deciding Which Institutions Receive the Money?
- What is the Scope of Treasury’s Statutory Authority?
- Is Treasury Looking Ahead?
On December 11, 2008, the Treasury published the investment agreements for privately held companies that are approved to receive TARP Capital infusions.
The Treasury has used the same basic structure as adopted for publicly traded companies: a uniform securities purchase agreement, form of warrant and certificate of designations for preferred stock, along with a personalized letter agreement providing the details for each particular investment.
On December 10, 2008, the FDIC published preliminary lists of financial institutions that have elected to opt-out of either the Debt or Transaction Account Guarantees under the Temporary Liquidity Guarantee Program. As noted by the FDIC, the decision to opt-out should not be read as a signal, either positive or negative, about the financial health of the entity. The FDIC recommends that depositors and investors with questions ask the entities on either of these lists for a further explanation concerning the entity’s decision to opt-out of the TLGP.
As of December 12, 2008, 863 banks elected to opt-out of the Transaction Account Guarantee, while 3,116 entities (which includes affiliated bank holding companies) elected to opt-out of the Debt Guarantee. Looking specifically at Georgia, 16 banks elected to opt-out of the Transaction Account Guarantee, while 54 entities elected to opt-out of the Debt Guarantee.
We are having discussions with clients regarding the possibility of issuing FDIC-guaranteed debt under the TLGP’s Debt Guarantee Program at the holding company level and using the proceeds of that debt to increase the capital of the bank subsidiary. This is particularly attractive for banks that are eligible to report their risk-based capital positions on a bank-only basis. (The Federal Reserve’s risk-based capital measures are generally applied on a bank-only basis for bank holding companies with consolidated assets of less than $500 million.)
Permissible Use for BHC FDIC-Guaranteed Debt
The FDIC’s Frequently Asked Questions (FAQ) explicitly permits a bank holding company to use the proceeds from a guaranteed debt issuance to purchase additional shares of bank stock.
Need to Apply to FDIC for Approval
In our experience, however, most bank holding companies for community banks had no, or very limited amounts of, senior unsecured debt outstanding as of September 30, 2008. As a result, the bank holding company will have to file a letter application with the FDIC and, if different, the federal banking regulator for its largest subsidiary bank to establish an FDIC-guaranteed debt limit. The letter application must describe the details of the request, provide a summary of the applicant’s strategic operating plan, and describe the proposed use of the debt proceeds.
On December 11, 2008, the Federal Financial Institutions Examination Council issued revised instructions for Call and Thrift Financial Reports applicable to participants in the TLGP Transaction Account Guarantee.
Participating institutions will be required to report the amount and number of its noninterest-bearing transaction accounts (including IOLTA accounts and certain NOW accounts) with balances in excess of $250,000. In calculating the figures, the bank or thrift is permitted, but not required, to exclude accounts or amounts that are otherwise insured under the FDIC’s pass-through insurance rules. The FDIC will use the reported amounts to calculate the 10 basis point assessment for participation in the Transaction Account Guarantee. As a result, it will likely be in the interest of reporting institutions to determine the amount in the accounts that is otherwise insured. The instructions note that the amounts must be fully supported in the institution’s workpapers.
The FFIEC also noted that the Call and Thrift Financial Reports have otherwise not been modified to reflect the temporary increase in deposit insurance to $250,000. As a result, institutions should continue to report the amount and number of deposit accounts (other than retirement accounts) of (a) $100,000 or less and (b) more than $100,000. In addition, when reporting estimated uninsured deposits, institutions should continue to calculate the amount of uninsured deposits based on the deposit insurance limits of $250,000 for retirement deposit accounts and $100,000 for all other accounts.
On December 11, 2008, the FDIC updated its Frequently Asked Questions (FAQ) on the Temporary Liquidity Guarantee Program. The updated questions address both the Transaction Account and Debt Guarantee portions of the TLGP, but this post focuses on the Debt Guarantee.
Further Clarification on Brokered Interbank CDs
The FAQ clarifies that if an issuing bank owes a CD to a broker, the CD does not meet the definition of senior unsecured debt (and will not be guaranteed) even where an insured depository institution or credit union is the beneficiary of the CD. If, on the other hand, the broker merely arranges placement of a CD and the bank or thrift owes the CD directly to another insured depository institution or credit union, then the CD meets the definition of senior unsecured debt (and will be guaranteed), provided that the debt is owed to the insured depository institution or credit union in its own capacity and not as agent for someone else.
On December 11, 2008, the FDIC updated its Frequently Asked Questions (FAQ) on the Temporary Liquidity Guarantee Program. The updated questions address both the Transaction Account and Debt Guarantee portions of the TLGP, but this post focuses on the Transaction Account Guarantee. Bank action is likely required to assure that NOW accounts are covered by the TLGP’s Transaction Account Guarantee.
The updated FAQ addresses four questions related to the guarantee of NOW accounts under the Transaction Account Guarantee. NOW accounts with interest rates no higher than 0.50 percent are treated as noninterest-bearing transaction accounts and eligible for the guarantee “if the insured depository institution at which the account is held has committed to maintain the interest rate at or below 0.50 percent.”
The “Commitment” Process
The TLGP regulations do not provide a procedure for making this commitment or for reducing interest rates. The FAQ clarifies that the Board of Directors or other authorized officials can make the commitment in accordance with the institution’s usual procedures for making decisions. The commitment should be clear, in writing, and maintained in the institution’s books and records to avoid any confusion as to the nature of the commitment.
Tiered-Rate or Floating NOW Accounts
If it is possible for the interest rate paid on the NOW account to exceed 50 bps, then the account is not eligible for the guarantee, even if the interest rate remains below 50 bps. If a NOW account (i) has a tiered-rate structure in which an interest rate above 0.50 percent is paid if the account balance is sufficiently large, or (ii) floats with an industry interest rate, then the NOW account will not be covered under the Transaction Account Guarantee “because the possibility exists that the interest rate will rise above 0.50 percent.”
The Treasury’s fourth round of completed TARP Capital infusions added four more public companies that are traded on the Over-The-Counter Bulletin Board (OTCBB): Blue Valley Ban Corp., Coastal Banking Company, Inc., Manhattan Bancorp, and Oak Valley Bancorp. As a result, it seems clear that the Treasury is willing to allow public reporting companies that are traded over the OTCBB participate in the TARP Capital program under the public company terms.
As we’ve previously noted, the definition provided by the Treasury of a publicly traded company is “a company (1) whose securities are traded on a national securities exchange and (2) required to file, under the federal securities laws, periodic reports such as the annual (Form 10-K) and quarterly (Form 10-Q) reports with either the Securities and Exchange Commission or its primary federal bank regulator.” While the Treasury has not defined what constitutes a national securities exchange, the OTCBB is generally not considered a “national securities exchange.” The SEC does not consider the OTCBB to be a national securities exchange. Neither does the OTCBB itself, which states that it is “not an issuer listing service, market or exchange.”