Temporary Liquidity Guarantee Program, 72244-72273 [E8-28184]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 73, Number 229 (Wednesday, November 26, 2008)]
[Rules and Regulations]
[Pages 72244-72273]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-28184]



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Part VII





Federal Deposit Insurance Corporation





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12 CFR Part 370



Temporary Liquidity Guarantee Program; Final Rule

Federal Register / Vol. 73, No. 229 / Wednesday, November 26, 2008 / 
Rules and Regulations

[[Page 72244]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 370

RIN 3064-AD37


Temporary Liquidity Guarantee Program

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is adopting a Final Rule to implement its Temporary 
Liquidity Guarantee Program. The Temporary Liquidity Guarantee Program, 
designed to avoid or mitigate adverse effects on economic conditions or 
financial stability, has two primary components: The Debt Guarantee 
Program, by which the FDIC will guarantee the payment of certain newly-
issued senior unsecured debt, and the Transaction Account Guarantee 
Program, by which the FDIC will guarantee certain noninterest-bearing 
transaction accounts.

DATES: Effective Date: The Final Rule becomes effective on November 21, 
2008, except that Sec.  370.5(h)(2), (h)(3), and (h)(4) are effective 
December 19, 2008.

FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Section Chief, 
Division of Insurance and Research, (202) 898-8967 or 
mstclair@fdic.gov; Lisa Ryu, Section Chief, Division of Insurance and 
Research, (202) 898-3538 or LRyu@fdic.gov; Richard Bogue, Counsel, 
Legal Division, (202) 898-3726 or rbogue@fdic.gov; Robert Fick, 
Counsel, Legal Division, (202) 898-8962 or rfick@fdic.gov; A. Ann 
Johnson, Counsel, Legal Division, (202) 898-3573 or aajohnson@fdic.gov; 
Gail Patelunas, Deputy Director, Division of Resolutions and 
Receiverships, (202) 898-6779 or gpatelunas@fdic.gov; John Corston, 
Associate Director, Large Bank Supervision, Division of Supervision and 
Consumer Protection, (202) 898-6548 or jcorston@fdic.gov; Serena L. 
Owens, Associate Director, Supervision and Applications Branch, 
Division of Supervision and Consumer Protection, (202) 898-8996 or 
sowens@fdic.gov; Donna Saulnier, Manager, Assessment Policy Section, 
Division of Finance, (703) 562-6167 or dsaulnier@fdic.gov; Michael L. 
Hetzner, Senior Assessment Specialist, Division of Finance, (703) 562-
6405 or mhetzner@fdic.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    On November 21, 2008, the Board of Directors (Board) of the Federal 
Deposit Insurance Corporation (FDIC) adopted a Final Rule relating to 
the Temporary Liquidity Guarantee Program (TLG Program). The TLG 
Program was announced by the FDIC on October 14, 2008, as an initiative 
to counter the current system-wide crisis in the nation's financial 
sector. It provided two limited guarantee programs: One that guaranteed 
newly-issued senior unsecured debt of insured depository institutions 
and most U.S. holding companies (the Debt Guarantee Program), and 
another that guaranteed certain noninterest-bearing transaction 
accounts at insured depository institutions (the Transaction Account 
Guarantee Program).
    The FDIC's establishment of the TLG Program was preceded by a 
determination of systemic risk by the Secretary of the Treasury (after 
consultation with the President), following receipt of the written 
recommendation of the Board on October 13, 2008, along with a similar 
written recommendation of the Board of Governors of the Federal Reserve 
System (FRB).
    The recommendations and eventual determination of systemic risk 
were made in accordance with section 13(c)(4)(G) to the Federal Deposit 
Insurance Act (FDI Act), 12 U.S.C. 1823(c)(4)(G). The determination of 
systemic risk allowed the FDIC to take certain actions to avoid or 
mitigate serious adverse effects on economic conditions and financial 
stability. The FDIC believes that the TLG Program promotes financial 
stability by preserving confidence in the banking system and 
encouraging liquidity in order to ease lending to creditworthy 
businesses and consumers. The FDIC anticipates that the TLG Program 
will favorably impact both the availability and the cost of credit. As 
a result, on October 23, 2008, the FDIC's Board authorized publication 
in the Federal Register and requested comment regarding an Interim Rule 
designed to implement the TLG Program. The Interim Rule with request 
for comments was published on October 29, 2008, and provided for a 15 
day comment period.\1\
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    \1\ 73 FR 64179 (Oct. 29, 2008).
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    Later, the FDIC amended its Interim Rule. The Amended Interim Rule 
became effective on November 4, 2008, and was published in the Federal 
Register on November 7, 2008. It made three limited modifications to 
the Interim Rule. In the Amended Interim Rule, the FDIC extended the 
opt-out deadline for participation in the TLG Program from November 12, 
2008 until December 5, 2008; extended the deadline for complying with 
specific disclosure requirements related to the TLG Program from 
December 1, 2008 until December 19, 2008; and established assessment 
procedures to accommodate the extended opt-out period. Additionally, in 
issuing the Amended Interim Rule, the FDIC requested comment on three 
additional questions relating to the TLG Program.
    The FDIC received over 700 comments on the Interim Rule and the 
Amended Interim Rule and, after consideration of those comments, issues 
the Final Rule that follows.

II. The Interim Rule

    The Interim Rule permitted the following eligible entities to 
participate in the TLG Program: FDIC-insured depository institutions, 
any U.S. bank holding company or financial holding company, and any 
U.S. savings and loan holding company that either engaged only in 
activities permissible for financial holding companies to conduct under 
section (4)(k) of the Bank Holding Company Act of 1956 (BHCA) or had at 
least one insured depository institution subsidiary that was the 
subject of an application that was pending on October 13, 2008, 
pursuant to section 4(c)(8) of the BHCA. To be considered an ``eligible 
entity'' under the Interim Rule, both bank holding companies and 
savings and loan holding companies were required to have at least one 
chartered and operating insured depository institution within their 
holding company structure The Interim Rule permitted other affiliates 
of insured depository institutions to participate in the program, with 
the permission of the FDIC, granted in its sole discretion and on a 
case-by-case basis, after written request and positive recommendation 
by the appropriate Federal banking agency. In making this 
determination, the FDIC would consider such factors as (1) the extent 
of the financial activity of the entities within the holding company 
structure; (2) the strength, from a ratings perspective, of the issuer 
of the obligations that will be guaranteed; and (3) the size and extent 
of the activities of the organization.
    The TLG Program became effective on October 14, 2008. The Interim 
Rule provided that from October 14, 2008, all eligible entities would 
be covered under both components of the TLG Program for the first 30 
days of the program unless they opted out of either component of the 
Program before then. Under the Interim Rule, the guarantees provided by 
the TLG Program under either the Debt Guarantee Program or the 
Transaction Account Guarantee Program would be offered at no cost to

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eligible entities until November 13, 2008. The Interim Rule provided 
that by 11:59 p.m., Eastern Standard Time (EST) on November 12, 2008, 
eligible entities were required to inform the FDIC whether they 
intended to opt-out of one or both components of the TLG Program. (The 
Interim Rule also permitted eligible entities to notify the FDIC before 
that date of their intent to participate in the program.) An eligible 
entity that did not opt-out of either or both programs became a 
participating entity in the program, according to the Interim Rule. 
Eligible entities that did not opt-out of the Debt Guarantee Program by 
the opt-out date of November 12, 2008, were not permitted to select 
which of their newly-issued senior unsecured debt would be guaranteed; 
the Interim Rule provided that all senior unsecured debt issued by a 
participating entity up to a limit of 125 percent of all senior 
unsecured debt outstanding on September 30, 2008, and maturing by June 
30, 2009, would be considered guaranteed debt when issued. The Interim 
Rule allowed a participating entity to make a separate election and pay 
a nonrefundable fee to issue non-guaranteed senior unsecured debt with 
a maturity date after June 30, 2012, prior to reaching the 125 percent 
debt guarantee limit.
    The Interim Rule permitted an eligible entity to opt-out of either 
the Debt Guarantee Program or the Transaction Account Guarantee Program 
or of both components of the TLG Program, but required all eligible 
entities within a U.S. Banking Holding Company or a U.S. Savings and 
Loan Holding Company structure to make the same decision regarding 
continued participation in each component of the TLG Program or none of 
the members of the holding company structure were considered eligible 
for participation in that component of the TLG Program.
    The Interim Rule required an eligible entity's opt-out decision(s) 
to be made publicly available. In the Interim Rule, the FDIC committed 
to maintain and post on its website a list of entities that opted out 
of either or both components of the TLG Program. The Interim Rule 
required each eligible entity to make clear to relevant parties whether 
or not it chose to participate in either or both components of the TLG 
Program.
    According to the Interim Rule, if an eligible entity remained in 
the Debt Guarantee Program of the TLG Program, it was required to 
clearly disclose to interested lenders and creditors, in writing and in 
a commercially reasonable manner, what debt it was offering and whether 
the debt was guaranteed under this program. Similarly, the Interim Rule 
provided that an eligible entity had to prominently post a notice in 
the lobby of its main office and at all of its branches disclosing its 
decision on whether to participate in, or opt-out of, the Transaction 
Account Guarantee Program. These disclosures were required to be 
provided in simple, readily understandable text, and, if the eligible 
entity decided to participate in the Transaction Account Guarantee 
Program, the Interim Rule required the notice to state that 
noninterest-bearing transaction accounts were fully guaranteed by the 
FDIC. The Interim Rule provided that if the institution used sweep 
arrangements or took other actions that resulted in funds in a 
noninterest-bearing transaction account being transferred to or 
reclassified as an interest-bearing account or a non-transaction 
account, the institution also must disclose those actions to the 
affected customers and clearly advise them in writing that such actions 
would void the transaction account guarantee. The Interim Rule required 
the described disclosures to be made by December 1, 2008.

A. The Debt Guarantee Program

    The Debt Guarantee Program, as described in the Interim Rule, 
temporarily would guarantee all newly-issued senior unsecured debt up 
to prescribed limits issued by participating entities on or after 
October 14, 2008, through and including June 30, 2009. The guarantee 
would not extend beyond June 30, 2012. The Interim Rule explained that, 
as a result of this guarantee, the unpaid principal and contract 
interest of an entity's newly-issued senior unsecured debt would be 
paid by the FDIC if the issuing insured depository institution failed 
or if a bankruptcy petition were filed by the respective issuing 
holding company.
    In the Interim Rule, senior unsecured debt included, without 
limitation, federal funds purchased, promissory notes, commercial 
paper, unsubordinated unsecured notes, certificates of deposit standing 
to the credit of a bank, bank deposits in an international banking 
facility (IBF) of an insured depository institution, and Eurodollar 
deposits standing to the credit of a bank. Senior unsecured debt was 
permitted to be denominated in foreign currency. For purposes of the 
Interim Rule, the term ``bank'' in the phrase ``standing to the credit 
of a bank'' meant an insured depository institution or a depository 
institution regulated by a foreign bank supervisory agency. To be 
eligible for the Debt Guarantee Program, senior unsecured debt was 
required to be noncontingent. Finally, the Interim Rule required senior 
unsecured debt to be evidenced by a written agreement, contain a 
specified and fixed principal amount to be paid on a date certain, and 
not be subordinated to another liability.
    The preamble to the Interim Rule explained that the purpose of the 
Debt Guarantee Program was to provide liquidity to the inter-bank 
lending market and promote stability in the unsecured funding market 
and not to encourage innovative, exotic or complex funding structures 
or to protect lenders who make risky loans. Thus, as explained in the 
Interim Rule, for purposes of the Debt Guarantee Program, some 
instruments were excluded from the definition of senior unsecured debt. 
Some of these exclusions from that definition were, for example, 
obligations from guarantees or other contingent liabilities, 
derivatives, derivative-linked products, debt paired with any other 
security, convertible debt, capital notes, the unsecured portion of 
otherwise secured debt, negotiable certificates of deposit, and 
deposits in foreign currency and Eurodollar deposits that represent 
funds swept from individual, partnership or corporate accounts held at 
insured depository institutions. Also excluded from the definition of 
``senior unsecured debt'' were loans from affiliates, including parents 
and subsidiaries, and institution-affiliated parties.
    The Interim Rule explained that debt eligible for coverage under 
the Debt Guarantee Program had to be issued by participating entities 
on or before June 30, 2009. The FDIC agreed to guarantee such debt 
until the earlier of the maturity date of the debt or until June 30, 
2012. The Interim Rule provided an absolute limit for coverage: 
coverage would expire at 11:59 p.m. EST on June 30, 2012, whether or 
not the liability had matured at that time. In order for the newly-
issued senior unsecured debt to be guaranteed by the FDIC, the Interim 
Rule required the debt instrument to be clearly identified as 
``guaranteed by the FDIC.''
    As explained in the Interim Rule, absent additional action by the 
FDIC, the maximum amount of senior unsecured debt that could be issued 
pursuant to the Debt Guarantee Program was equal to 125 percent of the 
par or face value of senior unsecured debt outstanding as of September 
30, 2008, that was scheduled to mature on or before June 30, 2009. The 
Interim Rule provided that the maximum guaranteed amount would be 
calculated for each individual participating entity within a holding 
company structure. In the

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Interim Rule, the FDIC outlined procedures that required each 
participating entity to calculate its outstanding senior unsecured debt 
as of September 30, 2008, and to provide that information--even if the 
amount of the senior unsecured debt was zero--to the FDIC.
    The 125 percent limit described in the Interim Rule could be 
adjusted for participating entities if the FDIC, in consultation with 
any appropriate Federal banking agency, determined it was necessary. 
Additionally, the Interim Rule provided that, after written request and 
positive recommendation by the appropriate Federal banking agency, the 
FDIC, in its sole discretion and on a case-by-case basis, may allow an 
affiliate of a participating entity to take part in the Debt Guarantee 
Program. Factors that would be relevant to this determination are (1) 
the extent of the financial activity of the entities within the holding 
company structure; (2) the strength, from a ratings perspective, of the 
issuer of the obligations that will be guaranteed; and (3) the size and 
extent of the activities of the organization.
    The Interim Rule also stated that, again, on a case-by case basis, 
the FDIC could authorize a participating entity to exceed the 125 
percent limitation or limit its participation to less than 125 percent.
    A participating entity was prohibited by the Interim Rule from 
representing that its debt was guaranteed by the FDIC if it did not 
comply with the rules governing the Debt Guarantee Program. If the 
issuing entity opted out of the Debt Guarantee Program, the Interim 
Rule provided that it could no longer represent that its newly-issued 
debt was guaranteed by the FDIC. Similarly, once an entity has reached 
its 125 percent limit, it was prohibited from representing that any 
additional debt was guaranteed by the FDIC, and was required to 
specifically disclose that such debt was not guaranteed.
    After consultation with a participating entity's appropriate 
Federal banking agency, the Interim Rule provided that the FDIC, in its 
discretion, could determine that a participating entity should not be 
permitted to continue to participate in the TLG Program. The FDIC 
explained that termination of an entity's participation in the Program 
would have only a prospective effect, and the FDIC required the entity 
to notify its customers and creditors that it was no longer issuing 
guaranteed debt.
    Under the Interim Rule, entities that chose to participate in the 
Debt Guarantee Program and to issue guaranteed debt had to agree to 
supply information requested by the FDIC, as well as to be subject to 
periodic FDIC on-site reviews as needed after consultation with the 
appropriate federal banking agency to determine compliance with the 
terms and requirements of the TLG Program. Participating entities also 
would be bound by the FDIC's decisions, in consultation with the 
appropriate Federal banking agency, regarding the management of the TLG 
Program. If an entity participated in the Debt Guarantee Program, the 
Interim Rule provided that it was not exempt from complying with 
federal and state securities laws and with any other applicable laws.

B. The Transaction Account Guarantee Program

    The Transaction Account Guarantee Program as described in the 
Interim Rule, provided for a temporary full guarantee by the FDIC for 
funds held at FDIC-insured depository institutions in noninterest-
bearing transaction accounts above the existing deposit insurance 
limit. This coverage became effective on October 14, 2008, and would 
continue through December 31, 2009 (assuming that the insured 
depository institution does not opt-out of this component of the TLG 
Program).
    Under the Interim Rule, a ``noninterest-bearing transaction 
account'' was defined as a transaction account with respect to which 
interest is neither accrued nor paid and on which the insured 
depository institution does not reserve the right to require advance 
notice of an intended withdrawal. This definition was designed to 
encompass traditional demand deposit checking accounts that allowed for 
an unlimited number of deposits and withdrawals at any time and 
official checks issued by an insured depository institution. The 
definition contained in the Interim Rule specifically did not include 
negotiable order of withdrawal (NOW) accounts or money market deposit 
accounts (MMDAs).
    The Interim Rule recognized that depository institutions sometimes 
waive fees or provide fee-reducing credits for customers with checking 
accounts and stated that such account features do not prevent an 
account from qualifying under the Transaction Account Guarantee 
Program, if the account otherwise satisfies the definition.
    The Interim Rule clarified that the guarantee provided for 
noninterest-bearing transaction accounts is in addition to and separate 
from the general deposit insurance coverage provided for in 12 CFR Part 
330. The FDIC stated that although the unlimited coverage for 
noninterest-bearing transaction accounts under the TLG Program is 
intended primarily to apply to transaction accounts held by businesses, 
it also applies to all such accounts held by any depositor.
    The Interim Rule included a provision relating to sweep accounts. 
Under this provision, the FDIC stated that it would treat funds in 
sweep accounts in accordance with the usual rules and procedures for 
determining sweep balances at a failed depository institution. Under 
these procedures, funds may be swept or transferred from a noninterest-
bearing transaction account to another type of deposit or nondeposit 
account, and the FDIC stated that it would treat the funds as being in 
the account to which the funds were transferred. The Interim Rule 
provided an exception for funds swept from a noninterest-bearing 
transaction account to a noninterest-bearing savings account: \2\ such 
swept funds would be treated as being in a noninterest-bearing 
transaction account. As a result of this treatment, the Interim Rule 
provided that funds swept into a noninterest-bearing savings account 
would be guaranteed under the Transaction Account Guarantee Program.
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    \2\ For purposes of this rule, ``savings account'' is a type of 
``savings deposit'' as defined in Regulation D issued by the Board 
of Governors of the Federal Reserve System, 12 CFR 204.2(d).
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C. Fees for the TLG Program

    The Interim Rule provided for fees related to both components of 
the TLG Program. It provided that, beginning on November 13, 2008, any 
eligible entity that had not opted out of the Debt Guarantee Program 
would be assessed fees for continued coverage. According to the Interim 
Rule, all eligible debt issued by such entities from October 14, 2008 
(and still outstanding on November 13, 2008), through June 30, 2009, 
would be charged an annualized fee equal to 75 basis points multiplied 
by the amount of debt issued, and calculated for the maturity period of 
that debt or June 30, 2012, whichever was earlier. (The Interim Rule 
explained that a deduction from this calculation would be made for the 
first 30 days of the program, for which no fees would be charged.) The 
Interim Rule further provided that if any participating entity issued 
eligible debt guaranteed by the Debt Guarantee Program, the 
participating entity's assessment would be based on the total amount of 
debt issued and the maturity date at issuance and that if the 
guaranteed debt was ultimately retired before its scheduled

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maturity, there would be no refund of pre-paid fees.
    If an eligible entity did not opt-out, the Interim Rule indicated 
that all newly-issued senior unsecured debt up to the maximum amount 
would become guaranteed as and when issued. Participating entities were 
prohibited from issuing guaranteed debt in excess of the maximum amount 
for the institution and also were prohibited from issuing non-
guaranteed debt until the maximum allowable amount of guaranteed debt 
had been issued.
    The Interim Rule permitted one exception to the prohibition against 
issuing non-guaranteed debt until the maximum allowable amount of 
guaranteed debt had been issued. A participating entity could issue 
non-guaranteed debt with maturities beyond June 30, 2012, at any time, 
in any amount, and without regard to the guarantee limit only if the 
entity informed the FDIC of its election to do so. This election was 
required to be made through FDICconnect on or before11:59 pm EST on 
November 12, 2008, and any party exercising this option was required to 
pay a non-refundable fee. This non-refundable fee equaled 37.5 basis 
points times the amount of the entity's senior unsecured debt with a 
maturity date on or before June 30, 2009, outstanding as of September 
30, 2008.
    If a participating entity nonetheless issued debt identified as 
``guaranteed by the FDIC'' in excess of the FDIC'S limit, according to 
the Interim Rule, the participating entity would have its assessment 
rate for guaranteed debt increased to 150 basis points on all 
outstanding guaranteed debt. For this violation (and for other 
violations of the TLG Program), a participating entity and its 
institution-affiliated parties will be subject to enforcement actions 
under section 8 of the FDI Act (12 U.S.C. 1818), including, for 
example, assessment of civil money penalties under section 8(i) of the 
FDI Act (12 U.S.C. 1818(i)), removal and prohibition orders under 
section 8(e) of the FDI Act (12 U.S.C. 1818(e)), and cease and desist 
orders under section 8(b) of the FDI Act (12 U.S.C. 1818(b)). The 
violation of any provision of the program by an insured depository 
institution also constitutes grounds for terminating the institution's 
deposit insurance under section 8(a)(2) of the FDI Act (12 U.S.C. 
1818(a)(2)). The appropriate Federal banking agency for the 
participating entity will consult with the FDIC in enforcing the 
provisions of this part. The appropriate Federal banking agency and the 
FDIC also have enforcement authority under section 18(a)(4)(C) of the 
FDI Act (12 U.S.C. 1828(a)(4)(C)) to pursue an enforcement action if a 
person knowingly misrepresents that any deposit liability, obligation, 
certificate, or share is insured when it is not in fact insured. 
Moreover, a participating entity's default in the payment of any debt 
may be considered an unsafe or unsound practice and may result in 
enforcement action.
    The Interim Rule recognized that much of the outstanding debt as of 
September 30, 2008, which was not guaranteed, would be rolled over into 
guaranteed debt only when the outstanding debt matured. The Interim 
Rule stated that the nonrefundable fee would be collected in six equal 
monthly installments. The Interim Rule provided that an entity electing 
the nonrefundable fee option also would be billed as it issued 
guaranteed debt under the Debt Guarantee Program, and that the amounts 
paid as a nonrefundable fee were to be applied to offset these bills 
until the nonrefundable fee was exhausted. Thereafter, according to the 
Interim Rule, the institution would be required to pay additional 
assessments on guaranteed debt as it issued the debt.
    Under the Transaction Account Guarantee Program described in the 
Interim Rule, the FDIC committed to provide a full guarantee for 
deposits held at FDIC-insured institutions in noninterest-bearing 
transaction accounts. This coverage became effective on October 14, 
2008, and would expire on December 31, 2009 (assuming the insured 
depository institution did not opt-out of the Transaction Account 
Guarantee Program). The Interim Rule provided that all insured 
depository institutions were automatically enrolled in the Transaction 
Account Guarantee Program for an initial thirty-day period (from 
October 14, 2008, through November 12, 2008) at no cost.
    Beginning on November 13, 2008, if an insured depository 
institution did not opt-out of the Transaction Account Guarantee 
Program, it would be assessed on a quarterly basis an annualized 10 
basis point assessment on balances in noninterest-bearing transaction 
accounts that exceed the existing deposit insurance limit of $250,000, 
according to the Interim Rule. In the Interim Rule, the FDIC stated its 
intent to collect such assessments at the same time and in the same 
manner as it collects an institution's quarterly deposit insurance 
assessments under existing part 327, although the assessments related 
to the Transaction Account Guarantee Program would be in addition to an 
institution's risk-based assessment imposed under that part.
    The Interim Rule also required the FDIC to impose an emergency 
systemic risk assessment on insured depository institutions if the fees 
and assessments collected under the TLG Program proved insufficient to 
cover losses incurred as a result of the program. In addition, if at 
the conclusion of these programs there were any excess funds collected 
from the fees associated with the TLG Program, the Interim Rule 
provided that the funds would remain as part of the Deposit Insurance 
Fund.

D. Payment of Claims by the FDIC Pursuant to the Transaction Account 
Guarantee Program

    The Interim Rule established a process for payment and recovery of 
FDIC guarantees of ``noninterest-bearing transaction accounts.'' In the 
Interim Rule, the FDIC stated that its obligation to make payment, as 
guarantor of deposits held in noninterest-bearing transaction accounts, 
arose upon the failure of a participating federally insured depository 
institution. The Interim Rule also noted that the payment and claims 
process for satisfying claims under the Transaction Account Guarantee 
Program generally would follow the procedures prescribed for deposit 
insurance claims pursuant to section 11(f) of the FDI Act, 12 U.S.C. 
1821(f), and that the FDIC would be subrogated to the rights of 
depositors against the institution pursuant to section 11(g) of the FDI 
Act, 12 U.S.C. 1821(g).
    The FDIC stated that it would make payment to the depositor for the 
guaranteed amount under the Transaction Account Guarantee Program or 
would make such guaranteed amounts available in an account at another 
insured depository institution when it fulfilled its deposit insurance 
obligation under Part 330. The Interim Rule provided that the payment 
made pursuant to the Transaction Account Guarantee Program would be 
made as soon as possible after the FDIC, in its sole discretion, 
determined whether the deposit was eligible and what amount would be 
guaranteed. In the preamble to the Interim Rule, the FDIC stated its 
intent to make the entire amount of a qualifying transaction account 
available to the depositor on the next business day following the 
failure of an institution that participated in the Transaction Account 
Guarantee Program. If there is no acquiring institution for a 
transaction account guaranteed by the Transaction Account Guarantee 
Program, in the preamble to the Interim Rule, the FDIC also stated its 
intent to mail a check to the depositor for the full amount of the 
guaranteed

[[Page 72248]]

account within days of the insured depository institution's failure.
    The Interim Rule provided that the FDIC would be subrogated to all 
rights of the depositor against the institution with respect to 
noninterest-bearing transaction accounts guaranteed by the Transaction 
Account Guarantee Program, and the preamble explained that this 
included the right of the FDIC to receive dividends from the proceeds 
of the receivership estate of the institution. The preamble to the 
Interim Rule also explained that the FDIC, as manager of the Deposit 
Insurance Fund, would be entitled to receive dividends in the deposit 
class for that portion of the account and that the FDIC would be 
entitled to receive dividends from the receiver for assuming its 
obligation with regard to the uninsured portion of the guaranteed 
transactional deposit accounts.
    The Interim Rule provided that claims related to noninterest-
bearing transaction accounts would be paid in accordance with 12 U.S.C. 
1821(f) and 12 CFR 330. The preamble to that rule provided that in 
paying such claims, the FDIC would rely on the books and records of the 
insured depository institution to establish ownership and that the FDIC 
could require a claimant to file a proof of claim (POC) in accordance 
with section 11(f)(2) of the FDI Act, 12 U.S.C. 1821(f)(2). The Interim 
Rule provided that the FDIC's determination of the guaranteed amount 
would be final and would be considered a final administrative 
determination subject to judicial review in accordance with Chapter 7 
of Title 5. The Interim Rule permitted a noninterest-bearing 
transaction account depositor to seek judicial review of the FDIC's 
determination on payment of the guaranteed amount in the United States 
district court for the federal judicial district where the principal 
place of business of the depository institution is located within 60 
days of the date on which the FDIC's final determination is issued.

E. Payment of Claims by the FDIC Pursuant to the Debt Guarantee 
Program: Insured Depository Institution Debt

    The Interim Rule indicated that, with respect to debt issued by an 
insured depository institution, the FDIC's obligation to make payment 
is triggered by the failure of a participating insured depository 
institution and that the FDIC would use its established receivership 
claims process to process guarantee requests. The Interim Rule required 
claimants under the Debt Guarantee Program to present their claims 
within 90 days of the publication of the claims notice by the receiver 
for the failed institution. In the preamble to the Interim Rule, the 
FDIC projected that many debtholders, particularly sellers of federal 
funds, would be paid on the next business day immediately following the 
failure of an insured depository institution, but that, in all 
instances, the FDIC would commit to pay claims expeditiously and strive 
to make payment on the business day following the establishment of the 
validity of the claim. The Interim Rule also provided that the FDIC 
would be subrogated to the rights of any creditor paid under this 
aspect of the Debt Guarantee Program.

F. Payment of Claims by the FDIC Pursuant to the Debt Guarantee 
Program: Holding Company Debt

    Under the Interim Rule, for senior unsecured debt of holding 
companies eligible for payment based on the Debt Guarantee Program, the 
FDIC's obligation to make payment would be triggered on the date of the 
filing of a bankruptcy petition involving a participating holding 
company. The Interim Rule also provided that the FDIC would pay the 
debtholder the principal amount of the debt and contract interest to 
the date of the filing of the bankruptcy petition and that the FDIC 
would pay interest on a claim for debt until paid at the 90-day T-bill 
rate in effect when the bankruptcy petition was filed if payment for 
the claim were delayed beyond the next business day after the filing of 
the bankruptcy petition.
    As with claims for debt issued by insured depository institutions, 
in the Interim Rule, the FDIC committed to expedite the claims payment 
process related to guaranteed debt, but the FDIC stated that it would 
not be required to make payment on the guaranteed amount for a debt 
asserted against a bankruptcy estate, unless and until the claim for 
the unsecured senior debt has been determined to be an allowed claim 
against the bankruptcy estate and such claim was not subject to 
reconsideration under 11 U.S.C. 502(j).
    The Interim Rule required the holder of eligible debt to file a 
timely claim against a participating holding company's bankruptcy 
estate and to submit evidence of the timely filed bankruptcy POC to the 
FDIC within 90 days of the published bar date of the bankruptcy 
proceeding. In the preamble to the Interim Rule, the FDIC explained 
that it could also consider the books and records of the holding 
company and its affiliates to determine the holder of the unsecured 
senior debt and the amount eligible for payment under the Debt 
Guarantee Program.
    The Interim Rule required the holder of the senior unsecured debt 
to assign its rights, title and interest in the unsecured senior debt 
to the FDIC and to transfer its allowed claim in bankruptcy to the FDIC 
to receive payment under the Debt Guarantee Program. The Interim Rule 
explained that this assignment included the right of the FDIC to 
receive principal and interest payments on the unsecured senior debt 
from the proceeds of the bankruptcy estate of the holding company. The 
assignment, as explained in the preamble to the Interim Rule, would 
entitle the FDIC to receive distributions from the liquidation or other 
resolution of the bankruptcy estate in accordance with 11 U.S.C. 726 or 
a confirmed plan of reorganization or liquidation in accordance with 11 
U.S.C. 1129. The Interim Rule also provided that if the holder of the 
senior unsecured debt received any distribution from the bankruptcy 
estate prior to the FDIC's payment under the guarantee, the guaranteed 
amount paid by the FDIC would be reduced by the amount the holder 
received in the distribution from the bankruptcy estate.

III. The Amended Interim Rule

    The Interim Rule established an opt-out deadline of November 12, 
2008, and a deadline of November 13, 2008, for submitting comments to 
the FDIC relating to the Interim Rule. The FDIC intended to issue a 
final rule only after the expiration of the comment period and 
consideration of comments related to the Interim Rule. In order to 
provide eligible entities an opportunity to review the final rule 
before they were required to decide whether or not to opt-out of the 
TLG Program, the FDIC amended its Interim Rule. The Amended Interim 
Rule differs from the Interim Rule in three ways: It extended the opt-
out date for participation in the TLG Program from November 12, 2008, 
until December 5, 2008; extended the deadline for complying with 
specific disclosure requirements related to the TLG Program from 
December 1, 2008 until December 19, 2008; and established some changes 
to the previously announced assessment procedures to accommodate the 
extended opt-out period. Apart from these and other related conforming 
technical modifications, as well as a few grammatical changes, the 
Amended Interim Rule made no other modifications to the text of the 
Interim Rule.
    When establishing December 5, 2008, as the new opt-out deadline, 
the FDIC

[[Page 72249]]

amended the Interim Rule to make conforming modifications to part 370 
that referred to or were based upon the previous opt-out deadline of 
November 12, 2008. These amendments were considered technical. As 
evidenced by the discussion that follows, other changes in the Amended 
Interim Rule that related to assessments under the Debt Guarantee 
Program and the Transaction Account Guarantee Program could be 
considered more substantive.
    According to the Interim Rule, eligible entities were not required 
to pay any assessment associated with the Debt Guarantee Program for 
the period from October 14, 2008, through November 12, 2008. The 
Amended Interim Rule retained this provision. In addition, the Amended 
Interim Rule provided that if an eligible entity opted out of the Debt 
Guarantee Program by the extended deadline of December 5, 2008, the 
entity would not be required to pay any assessment under the program.
    The Interim Rule also contained notice and certification 
requirements for eligible entities that issue guaranteed debt under the 
Debt Guarantee Program for the period from October 14, 2008 through 
November 12, 2008, and for the period after November 12, 2008, 
respectively. Although the notification and certification requirements 
did not change in the Amended Interim Rule, the references in those 
sections to the former opt-out deadline of November 12, 2008, were 
changed to reflect the new opt-out deadline of December 5, 2008.
    Regarding the initiation of assessments related to the Debt 
Guarantee Program, the Interim Rule provided that beginning on November 
13, 2008, any eligible entity that had chosen not to opt-out of this 
aspect of the TLG Program would be charged assessments as provided in 
part 370. The Interim Rule did not distinguish between overnight debt 
instruments and other types of newly-issued senior unsecured debt. 
Although the manner of calculating assessments did not change in the 
Amended Interim Rule, the revisions relating to the initiation of 
assessments reflected two modifications. The first change reflected the 
newly extended opt-out deadline, and the second change differentiated 
between overnight debt instruments and other newly-issued senior 
unsecured debt and explained how assessments would be treated for 
overnight debt instruments as compared with other newly-issued senior 
unsecured debt.
    The Amended Interim Rule provided that assessments would accrue, 
with respect to each eligible entity that did not opt-out of the Debt 
Guarantee Program on or before December 5, 2008: (1) Beginning on 
November 13, 2008, on all senior unsecured debt, other than overnight 
debt instruments, issued by it on or after October 14, 2008, that was 
still outstanding on November 13, 2008; (2) beginning on November 13, 
2008, on all senior unsecured debt, other than overnight debt 
instruments, issued by it on or after November 13, 2008, and before 
December 6, 2008; and (3) beginning on December 6, 2008, on all senior 
unsecured debt issued by it on or after December 6, 2008. According to 
the Amended Interim Rule, calculations related to both overnight debt 
instruments and other newly-issued unsecured debt continue to be made 
in accordance with the Interim Rule.
    According to the Interim Rule, eligible entities were not required 
to pay an assessment associated with the Transaction Account Guarantee 
Program from the period from October 14, 2008, through November 12, 
2008. To this, the Amended Interim Rule added that if an eligible 
entity opted out of the Transaction Account Guarantee Program by the 
extended opt-out deadline of December 5, 2008, then it would not be 
responsible for paying any assessment under the program.
    Regarding the initiation of assessments for the Transaction Account 
Guarantee Program, the Interim Rule provided that for the period 
beginning on November 13, 2008, and continuing through December 31, 
2009, any eligible entity that did not notify the FDIC that it had 
opted out of this component would be charged an assessment for its 
participation in the Transaction Account Guarantee Program. The Amended 
Interim Rule reflected the newly-extended opt-out date. The Amended 
Interim Rule provided that beginning on November 13, 2008, an eligible 
entity that had not opted out of the Transaction Account Guarantee 
Program on or before December 5, 2008, would be required to pay the 
FDIC assessments on all deposit amounts in noninterest-bearing 
transaction accounts. The Amended Interim Rule also indicated that 
calculations related to the amount of assessments for the Transaction 
Account Guarantee Program would continue to be made in accordance with 
the Interim Rule.

IV. Comments on the Interim Rule and the Amended Interim Rule

    The FDIC received over [700] comments on the Interim Rule and the 
Amended Interim Rule
    The FDIC invited general comments on all aspects of the Interim 
Rule and sought comments from the public for suggestions as to its 
implementation. In addition, the FDIC raised specific questions 
regarding the possibility of more expeditious processing of claims 
under the Debt Guarantee Program: Whether coverage for certain NOW 
accounts should be provided under the Transaction Account Guarantee 
Program; whether the disclosures required in the Interim Rule were 
beneficial in light of the potential costs in providing them; and the 
general administrative cost of the Interim Rule. In the Amended Interim 
Rule, the FDIC sought comment on three additional areas of interest: 
Suggested rates for short-term borrowings versus longer term 
borrowings; the possibility of combining holding company and bank debt 
(without exceeding their combined guaranteed debt limit); and 
suggestions for establishing a guaranteed debt limit for those 
institutions that had no senior unsecured debt outstanding as of 
September 30, 2008.
    Some of the comments received by the FDIC were equally applicable 
to both components of the TLG Program; others related specifically to 
either the Transaction Account Guarantee Program or the Debt Guarantee 
Program. A summary of the collective comments received in response to 
the Interim Rule and the Amended Interim Rule (as well as the FDIC's 
response to those comments) follows.

General Comments Regarding the TLG Program

    The FDIC received a number of comments that expressed general 
support of the FDIC's efforts to establish and implement the TLG 
Program. These commenters stated their belief that the TLG Program 
could help ease the strains in the credit markets, improve the access 
of financial institutions to liquidity, mitigate systemic risks in the 
financial system, and preserve public confidence in banks and other 
financial institutions.
    However, the FDIC also received some comments from community 
bankers stating that, while they appreciate the efforts being made to 
strengthen confidence in the banking system, they have not been 
experiencing capital or liquidity problems and, therefore, do not see 
the need for the TLG Program and, in fact, consider the TLG Program's 
potential to raise their cost of funds detrimental. In particular, the 
commenters raised the possibility that if they choose to opt-out of the 
Debt Guarantee Program they may have to pay more for correspondent 
banking services and may be stigmatized. As discussed below, the Final 
Rule excludes short-term senior unsecured

[[Page 72250]]

debt with a maturity of thirty days or less from the Debt Guarantee 
Program, which should ease the concerns of these commenters, since the 
comments raised questions primarily about overnight funding.
    One commenter observed that the Debt Guarantee Program may pose 
adverse selection risks where only weak institutions participate in the 
Debt Guarantee Program and strong institutions opt-out. While 
acknowledging the concerns raised by the commenter, the FDIC is 
confident that the benefits of the program, coupled with the revisions 
made to the Final Rule in response to industry comments will ensure 
that the majority of strong institutions will participate. In addition, 
working with the other primary federal regulators, the FDIC's 
supervisory staff will also closely monitor and limit, as appropriate, 
use by weaker institutions.
    A banking trade association emphasized the FDIC's need to retain 
flexibility to adjust the program and quickly correct problems. In the 
commenter's view, this flexibility would include both the flexibility 
to change the elements of the guarantee (including debt covered, 
pricing, and terms) and the ability of banks to participate or not in 
the program. The FDIC believes that the changes it is making in the 
rule and the discretion it retains in implementing the rule are the 
most appropriate means of addressing these concerns.
Competitive Issues and Potential Effects on Other Entities
    A number of commenters indicated that differences between the 
FDIC's Debt Guarantee Program and the debt guarantee programs in other 
countries could create competitive disparities. These commenters 
specifically recommended that the FDIC emphasize that its guarantee is 
backed by the full faith and credit of the federal government and that 
the FDIC revise the program to guarantee timely payment of principal 
and interest. The FDIC agrees with these comments and has revised the 
nature of the guarantee to cover timely payment of principal and 
interest as discussed below. Also, the disclosure required by the Final 
Rule for debt issued under the Debt Guarantee Program includes the 
statement that the debt is backed by the full faith and credit of the 
United States.
    A comment from one of the regulators of a Government Sponsored 
Enterprise (GSE) and an insurer of that GSE's bonds warned of potential 
disruptions, dislocations, and investor confusion in the debt markets 
due to the FDIC's debt guarantee that may disadvantage the GSEs. These 
two commenters neither supported nor opposed the Amended Interim Rule 
and noted that these potential unintended consequences are mitigated by 
the fact that the program is temporary. The FDIC agrees that this 
temporary program should not significantly affect the GSE debt markets. 
In addition, this program has the potential to lower the funding costs 
of most of the major mortgage originators, which may have a beneficial 
impact on mortgage availability and costs.
    One commenter noted that the Debt Guarantee Program will reduce 
secured borrowing and harm the earnings of Federal Home Loan Banks, 
which are owned by insured institutions. In the FDIC's view, Federal 
Home Loan Banks function well under ordinary circumstances, when market 
failures have not prevented healthy institutions from borrowing on an 
unsecured basis. The Debt Guarantee Program is a time-limited program 
intended to restore normal functioning to the market; and, therefore, 
it should not materially affect the Federal Home Loan Banks.
Extending the Opt-Out Deadline
    The FDIC also received several comments requesting that the opt-out 
deadline established in the Interim Rule be extended until the Final 
Rule was announced to permit eligible entities sufficient time to 
review the Final Rule and make a more informed decision regarding their 
participation in the TLG Program. Recognizing these concerns, in its 
Amended Interim Rule, the FDIC extended the opt-out deadline from 
November 12, 2008 until December 5, 2008, and made corresponding 
changes to other dates affected by the revised opt-out deadline.
Systemic Risk Assessment
    A few commenters raised the issue of the systemic risk assessment. 
The Amended Interim Rule provides that, if the assessments for the TLG 
Program are insufficient to cover the expenses related to the program, 
an emergency special assessment will be made on all insured depository 
institutions. While acknowledging that section 13(c)(4)(G)(ii) of the 
FDI Act, 12 U.S.C. 1823(c)(4)(G)(ii), requires the FDIC to levy a 
systemic risk assessment against all insured depository institutions, 
the commenters suggested that such an assessment be levied against all 
entities that participate in the TLG Program, not against those insured 
depository institutions that opt-out. Another trade association 
commenter requested that the FDIC levy a special assessment to entities 
owned by holding companies with significant non-bank subsidiaries in 
proportion to program losses generated by such entities. Absent 
legislative changes, however, the FDIC has no authority to alter the 
statutory requirements of the systemic risk assessment provision and 
must levy the assessment on all insured depository institutions (and 
only insured depository institutions), in accordance with the statute.
    The Board of Governors of the Federal Reserve System (Federal 
Reserve Board), as primary supervisor of bank holding companies (BHCs), 
strongly supports including BHCs in the TLG Program. Indeed, Federal 
Reserve Board staff has warned that not including BHCs ``would pose 
significant risks to individual insured depository institutions (IDIs) 
and the banking system as a whole.'' \3\ The rationale for guaranteeing 
holding company debt is to promote liquidity in the banking industry, 
since bank and thrift holding companies, rather than banks and thrifts 
themselves, issue most senior unsecured debt in many holding company 
structures. The holding companies, in turn, provide liquidity to their 
bank and thrift subsidiaries. The FDIC expects its Debt Guarantee 
Program to yield more revenue than costs. Further, the FDIC is 
modifying the fee structure for the Debt Guarantee Program to impose 
modestly higher fees on holding companies whose insured depository 
institutions present less than 50 percent of consolidated assets. 
Guaranteeing BHC debt is not without risks to the Deposit Insurance 
Fund (DIF), though the Federal Reserve Board has provided strong 
assurances that they will use all supervisory powers available to them 
to minimize these risks.\4\ The Office of Comptroller of the Currency 
and the Office of Thrift Supervision have made similar assurances. For 
these reasons and based on its own analysis of the risks presented, the 
FDIC believes the risks are acceptable and anticipates that revenue 
collected for the guarantee under the Debt Guarantee Program will be 
sufficient to cover the costs. Any surplus funds will be put in the DIF 
to ease pressure on premiums paid by depository institutions.
---------------------------------------------------------------------------

    \3\ Memorandum dated November 19, 2008, to FDIC Chairman Sheila 
C. Bair from Federal Reserve Board Staff at page 1.
    \4\ Letter dated November 19, 2008, to FDIC Chairman Sheila C. 
Bair from Chairman of the Board of Governors of the Federal Reserve 
System Ben S. Bernanke.
---------------------------------------------------------------------------

Cost and Benefit
    In the Interim Rule, the FDIC asked whether the collection of 
information was necessary for the proper performance of the FDIC's 
duties and

[[Page 72251]]

whether the information sought had practical utility. Further, the FDIC 
asked whether its burden estimates were accurate and whether the 
assumptions that supported its burden calculation were valid. 
Commenters were asked to address ways to enhance the quality and 
clarity of the information collected and to provide suggestions for 
minimizing the burden of affected parties in providing the requested 
information to the FDIC. Although the FDIC received no comments that 
were specifically responsive to these questions, the FDIC continues to 
believe that the TLG Program will enhance financial stability and will 
preserve confidence in the banking system without placing undue 
restrictions on participating entities or those who may someday seek 
payment under the Program's debt or transaction account guarantees, 
particularly in light of the changes made to the claims and payment 
processes in the Final Rule.

Comments Related to the Scope of the Debt Guarantee Program

    In the Amended Interim Rule, the FDIC sought comment as to whether 
the FDIC should charge different guarantee fees for federal funds or 
other short-term borrowings as compared to longer term debt 
instruments. In addition, the FDIC sought suggestions for establishing 
the differentiating criteria for the types of borrowings and for the 
actual rates that should be paid for each type. The FDIC received a 
substantial number of comments regarding these issues and regarding 
definitions applicable to the Debt Guarantee Program.
Federal Funds and Other Short-Term Instruments
    The FDIC received a large number of comments urging either the 
exclusion of federal funds and similar overnight instruments from the 
Debt Guarantee Program or the reduction in the annualized 75 basis 
point guarantee fee for overnight borrowings from annualized 75 basis 
points to 10 or 25 basis points. Several commenters suggested that the 
Debt Guarantee Program should cover federal funds on an unlimited 
basis, but at a significantly lower fee.
    The commenters indicated that the level of fees called for in the 
Amended Interim Rule is prohibitively expensive for short-term maturity 
instruments, such as federal funds, given the low prevailing effective 
rate for federal funds. These commenters felt that the proposed fee 
structure could lead many eligible institutions that would otherwise 
participate in the program to opt-out of the Debt Guarantee Program 
altogether or to shift from federal funds to secured short-term 
borrowings from sources such as the Federal Reserve discount window, 
the Federal Reserve's Term Auction Facility (TAF), or Federal Home Loan 
Banks. Other commenters and market participants have also expressed the 
view that various federal programs have contributed to improved 
liquidity in the short-term funding market and, therefore, the FDIC's 
guarantee of debt with very short-term maturities, such as overnight 
federal funds, is no longer necessary or desirable in light of the 
costs that would be associated with such guarantees.
    Based on these comments, in the Final Rule, the FDIC has revised 
the definition of guaranteed senior unsecured debt to exclude debt with 
a stated maturity of thirty days or less. The FDIC acknowledges that 
the 75 basis point guarantee fee may be too high for short-term money 
market instruments such as overnight federal funds or Eurodollars in 
relation to prevailing overnight interest rates. Furthermore, recent 
market data from the Federal Reserve Board and market participants 
suggest less significant disruption in short-term money markets, 
particularly as the Federal Reserve Board lowers short-term interest 
rates and actively provides liquidity. Many entities that are eligible 
to participate in the TLG Program have, in fact, shortened their 
funding maturities considerably as they continue to experience 
difficulties obtaining longer-term unsecured debt, with much of the 
recently issued debt either being secured or having a maturity of 30 
days or less. The FDIC believes that the Debt Guarantee Program should 
help institutions to obtain stable, longer-term sources of funding 
where liquidity is currently most lacking.
Fees
    As discussed above, several commenters stated that fees for short-
term instruments were too high. One trade association urged the FDIC to 
adopt a risk-based pricing model for the Debt Guarantee Program with 
guarantee fees ranging from under 10 basis points to no more than 50 
basis points depending on a bank's CAMELS rating and the term of the 
borrowings and that small bank and thrift holding companies should be 
assessed a fee based on the CAMELS ratings for the companies' financial 
institution subsidiaries. Other commenters suggested that the FDIC 
develop a sliding scale for fees based on the maturity of the 
instruments, especially for very short-term instruments like federal 
funds. As discussed in more detail below, the Final Rule adopts a 
sliding rate scale based on an instrument's maturity. Rates for shorter 
term debt (180 days or less, excluding overnight debt) are less than 75 
basis points; rates for longer term debt (365 days or greater) are 
slightly higher.
    A banking trade association urged the FDIC to exclude holding 
companies with significant non-bank subsidiaries from the Debt 
Guarantee Program on the grounds that community banks and other insured 
depository institutions would be forced to pay for losses on these 
guarantees through a special assessment on FDIC-insured institutions 
only. In the alternative, the association asked the FDIC to develop a 
methodology for these entities to pay a special assessment for their 
proportional share of any Program losses. The FDIC believes that it is 
essential to allow some holding companies to participate in the Debt 
Guarantee Program to provide liquidity to the inter-bank lending market 
and promote stability in the unsecured funding market. As discussed 
earlier, the FDIC does not have the statutory authority to levy a 
special assessment on non-depository institutions. However, the FDIC 
has decided to increase the Debt Guarantee Program fees by 10 basis 
points for holding companies where affiliated insured depository 
institutions constitute less than half of holding company consolidated 
assets.
    The Interim Rule required each participating entity in the Debt 
Guarantee Program to take necessary action to allow the FDIC to debit 
its assessments from the entity's designated deposit account as 
provided for in section 327(a)(2). The Interim Rule required funds to 
be available in the designated account for direct debit by the FDIC on 
the first business day after the invoice is posted on FDICconnect. One 
commenter asked how a holding company could minimize the risk of 
violating section 23A of the Federal Reserve Act, assuming that the 
holding company intended to deposit funds in its affiliated insured 
depository institution's ACH account for the FDIC's direct debit of 
both the holding company's assessment and the bank's assessment. To 
avoid violations of 23A of the Federal Reserve Act, the FDIC expects 
participating holding companies to fund its affiliated insured 
depository institution's ACH account in advance of the FDIC's direct 
debit of the assessments.
Requirement of a Written Agreement
    The Amended Interim Rule defines senior unsecured debt in part as 
unsecured borrowing that is evidenced by a written agreement. The FDIC

[[Page 72252]]

received several comments that urged the FDIC to make an exception for 
this requirement for federal funds. Several commenters also noted that 
certain types of short-term debt, such as overnight transactions or 
transactions with maturities of one week or less, typically are not 
evidenced by a written agreement. As noted above, in the Final Rule the 
FDIC has excluded obligations with a stated maturity of thirty days or 
less from the definition of senior unsecured debt. The FDIC anticipates 
that this action will satisfy those with concerns regarding written 
agreements applicable to federal funds and other short-term debt. Also, 
the FDIC has clarified in the Final Rule that trade confirmations are a 
sufficient form of written agreement to establish eligibility as a 
senior unsecured debt for purposes of the Debt Guarantee Program.
Full Faith and Credit
    Several commenters sought confirmation that the guarantees provided 
by the FDIC under the Debt Guarantee Program were backed by the full 
faith and credit of the United States. The FDIC has concluded that the 
FDIC's guarantee of qualifying debt under the Debt Guarantee Program is 
subject to the full faith and credit of the United States pursuant to 
section 15(d) of the FDI Act, 12 U.S.C. 1825(d). Under both the Amended 
Interim Rule and the Final Rule adopted by the FDIC, the principal 
amount and term to or date of maturity of conforming debt instruments--
citing the FDIC guarantee on their face--will effectively be 
incorporated by reference into the FDIC's debt guarantee, and the 
provisions of section 15(d) are therefore satisfied.
Establishing Guarantee Cap for Institutions With No or Limited Senior 
Unsecured Debt
    The Amended Interim Rule established September 30, 2008, as the 
threshold date by which the limit for eligible debt coverage for a 
participating entity is calculated. On that date, if a participating 
entity has no senior unsecured debt, it can still seek to have some 
amount of debt covered by the Debt Guarantee Program in an amount to be 
determined by the FDIC on a case-by-case basis following discussion 
with the appropriate Federal banking agency. In the Amended Interim 
Rule, the FDIC asked whether it should establish an alternative method 
for establishing a guarantee cap for such institutions and, if so, what 
the alternative method should be.
    A number of commenters expressed concern that the Debt Guarantee 
Program could have an unintended negative impact on eligible 
institutions with little or no federal funds purchased and outstanding 
on the threshold date of September 30, 2008. In particular, these 
commenters expressed concern that liquidity available on an unsecured 
basis prior to establishment of the Debt Guarantee Program would no 
longer be available to them as lenders and would give preference to 
guaranteed borrowers. Several commenters recommended that the FDIC 
remedy these concerns by defining the cap as the greater of (1) 125% of 
senior unsecured debt outstanding on September 30, 2008 and maturing on 
or before June 30, 2009, or (2) either 100% of the federal funds 
accommodations lines available to the institution as of September 30, 
2008, or a percentage of total assets or total liabilities outstanding 
on September 30, 2008. Others suggested that the guarantee cap should 
be calculated based on the highest amount of senior unsecured debt 
outstanding during 2008, the average amount of senior unsecured debt 
outstanding during 2008, the average amount of senior unsecured debt 
outstanding during the third quarter of 2008, varying percentages of 
total assets and tota