This article was originally published 24 November, 2008
On November 21, 2008, the Federal Deposit Insurance Corporation ("FDIC") issued its final rule (the "Rule") relating to the Temporary Liquidity Guarantee Program ("TLGP") that the FDIC announced on October 14, 2008. The Rule sets forth the final terms of both the Debt Guarantee Program ("DGP"), under which the FDIC guarantees the payments of certain newly-issued senior unsecured debt, and the Transaction Account Guarantee Program ("TAGP"), under which the FDIC guarantees the totality of certain noninterest-bearing transaction accounts. The Rule varies in several respects from the terms of the interim rule (the "Interim Rule") and its amendment that were issued on October 23, 2008 and November 3, 2008, respectively. As further discussed below, a significant change is that, upon a payment default, the FDIC guarantee under the DGP now guarantees timely payment of principal and interest as required under the terms of the guaranteed debt instrument, subject to the terms of the DGP. This has permitted Standard & Poor's ("S&P") to determine that the guarantee will constitute a "rating substitution," thereby permitting S&P to assign the guaranteed debt the same rating as the U.S. government. The following briefly summarizes the terms set forth in the Rule, noting where the terms of the Rule vary from previous versions.
General TLGP Terms
Eligibility
The Rule defines the entities that may participate in the TLGP ("Eligible Entities") as: (i) FDIC-insured depository institutions (excluding, in the case of the DGP, FDIC-insured branches of foreign banks); (ii) any U.S. bank holding company ("BHC") or financial holding company ("FHC") that controls at least one chartered and operating insured depository institution; (iii) any U.S. savings and loan holding company ("SLHC") that controls at least one chartered and operating insured depository institution and that either engages only in activities that are permissible for FHCs under section 4(k) of the Bank Holding Company Act of 1956 ("BHCA") or has at least one insured depository institution subsidiary that is the subject of an application that was pending on October 13, 2008, pursuant to section 4(c)(8) of the BHCA; or (iv) affiliates of insured depository institutions that the FDIC, after consultation with the appropriate Federal banking agency, determines are eligible. The Rule has added a stipulation that such affiliates that become Eligible Entities automatically become participants in the DGP. Entities that form after December 5, 2008 will be eligible for participation at the FDIC's discretion. Eligible Entities that are insured depository institutions that lose their status as insured depository institutions will no longer be eligible for participation in the TLGP. Additionally, BHCs, FHCs and SLHCs that are no longer affiliated with a chartered and operating insured depository institution will no longer be eligible for participation in the TLGP.
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