Temporary Liquidity Guarantee Program
The Temporary Liquidity Guarantee Program (TLGP) was a program administered by the Federal Deposit Insurance Corporation (FDIC) from 2008 to 2010 in the aftermath of the financial crisis of 2007–2008. The program sought to promote confidence in the US banking system by guaranteeing interbank loans and no-interest transaction accounts, such as checking accounts.[1]
Components
The Temporary Liquidity Guarantee Program has two primary components: the Debt Guarantee Program, by which the FDIC guaranteed the payment of certain newly issued senior unsecured debt, and the Transaction Account Guarantee Program, by which the FDIC guaranteed certain noninterest-bearing transaction accounts. FDIC insured entities may opt out of either program. [1]
Debt Guarantee Program
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.
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. (and thus the program would last approximately six months) 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. Over 6000 entities have opted out of this program. DGP Opt-out list (.xls)
The Debt Guarantee Program passed out debt guarantees in excess of $600 billion. yet, unlike the other major agencies bailing out the financial sector during the global financial crisis of 2008—the Federal Reserve and the U.S. Treasury—the FDIC has never disclosed the identity of all the banks taking advantage of the bailout guarantees. Wilson and Wu (2011) find that the recipients of the FDIC debt guarantees paid their CEOs significantly more than their peers. Thus, bailed out CEOs mad significantly more than bank CEOs not accepting the FDIC's bailout loan guarantees.[2]
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. On August 26, 2009, the FDIC extended the Transaction Account Guarantee Program for six months, through June 30, 2010.[3] The guarantee was then extended an additional six months, through December 31, 2010.[4] Thereafter section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act will provide a similar transaction account insurance, from December 31, 2010 through December 31, 2012.[5]
See also
The Senate on 12/13/12 failed to advance legislation (S. 3637) that would have provided a two-year extension of the Transaction Account Guarantee program, practically guaranteeing that the program will expire as scheduled on Dec. 31.
References
- ^ "FDIC Press Release". Fdic.gov. Retrieved 2011-12-08.
- ^ Wilson, Linus and Wu, Yan, Overpaid CEOs Got FDIC Debt Guarantees (December 27, 2011). Available at SSRN: http://ssrn.com/abstract=1977345
- ^ "Financial Institution Letter FIL-48-2009". Fdic.gov. Retrieved 2011-12-08.
- ^ "FDIC: Temporary Liquidity Guarantee Program Frequently Asked Questions". Fdic.gov. Retrieved 2011-12-08.
- ^ "Federal Register / Vol. 75, No. 189 / Thursday, September 30, 2010 / Proposed Rules" (PDF). Retrieved 2011-12-08.