While the FDIC’s Temporary Liquidity Guarantee Program (TLGP) remains an “opt-out” program, institutions must take affirmative action if they do not opt-out of the Debt Guarantee portion of the TLGP. Moreover, the FDIC’s Election Form Instructions state that all eligible entities must file the Election Form no later than 11:59 p.m., Eastern Standard Time, on December 5, 2008.

Failure to opt-out by 11:59 p.m., Eastern Standard Time, on December 5, 2008 constitutes an irrevocable decision to remain in both components of the TLGP, as described in the following paragraph.  However, it is unclear whether institutions will be able to actually participate in the Debt Guarantee portion of the TLGP unless they have affirmatively opted-in.

About the TLGP

On October 14, 2008, the FDIC announced the TLGP to strengthen confidence and encourage liquidity in the banking system.  The TLGP consists of two components: a temporary guarantee of newly-issued senior unsecured debt (the “Debt Guarantee”) and a temporary unlimited guarantee of funds in noninterest-bearing transaction accounts at FDIC-insured institutions (the “Transaction Account Guarantee”).  The FDIC has provided a TLGP website and Frequently Asked Questions.  In addition, all posts on BankPogo.com regarding the TLGP can be accessed here.

The TLGP Election Form

The TLGP Election Form must be submitted for all eligible entities using FDICconnect.  The FDIC has also provided PDF versions of a Sample Election Form and the Election Form Instructions, which should be reviewed before completing the Election Form on FDICconnect.

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On December 2, 2008, the FDIC added several questions and answers to its TLGP FAQ.  We have highlighted some of these clarifications below.

• Credit unions are not eligible to participate in any aspect of the TLGP.
• Fed funds purchased can be covered under the Debt Guarantee Program, so long as the term of the debt exceeds 30 days.
• CDs owed to an insured depository instutiton through the CDARS network are not considered senior unsecured debt, and therefore not eligible to be guaranteed.  Under the Debt Guarantee Program, certificates of deposit owed to an insured depository instituion are considered senior unsecured debt (and eligible for an FDIC guarantee) only if they are owed to the institution solely in that bank’s own capacity and not as an agent.
• Negotiable (or transferable) CDs are excluded from the definition of senior unsecured debt for purposes of the Debt Guarantee Program.
• The FDIC will calculate the 2 percent of liabilities debt guarantee limit using Call Report Schedule RC, Item 21 (total liabilities).
• Interbank CDs will not be assessed under the Debt Guarantee Program to the extent the CDs are otherwise insured on the date the CD is issued.  Whether a CD is otherwise insured will be determined by first applying deposit insurance to all existing deposits owed to the holder of the CD in the same right and capacity.  Institutions will be required to provide the FDIC with a good faith estimate of the amount of interbank CDs that are uninsured.
• The Fee for the Debt Guarantee Program is based on the amount and type of debt issued.  If a participating entity opts into the program, but never issues senior unsecured debt, no fee will be assessed.