Temporary Liquidity Guarantee Program
Encyclopedia
The Temporary Liquidity Guarantee Program (TLGP) is a program adopted by the Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...

 (FDIC) on October 13, 2008 during the Global financial crisis of 2008 to encourage liquidity in the interbank lending market.

Several stated purposes of this program are (1) "to decrease the cost of bank funding so that bank lending to consumers and businesses will normalize." and (2)
"to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s, thrift
Thrift
Thrift may refer to:* A savings and loan association in the United States* Restrained or disciplined spending habits* Apache Thrift a remote procedure call framework developed at Facebook for "scalable cross-language services development"....

s, and certain holding company, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount."

The TLG Program became effective on October 14, 2008 and was subsequently revised based on bank feedback.

Many FDIC insured entities have chosen to not participate ("opt out") in one or both of these programs.

Interim Rule, Amended Interim Rule, and Final Rule

The Interim Rule with request for comments was published on October 29, 2008, and provided for a 15 day comment period. The FDIC received more than 700 comments during the 15-day comment period. Later, the FDIC amended its Interim Rule. The Amended Interim Rule became effective on November 4, 2008, and was published in the Federal Register
Federal Register
The Federal Register , abbreviated FR, or sometimes Fed. Reg.) is the official journal of the federal government of the United States that contains most routine publications and public notices of government agencies...

 on November 7, 2008.

In its Amended Interim Rule, the FDIC extended the opt-out
Opt-out
The term opt-out refers to several methods by which individuals can avoid receiving unsolicited product or service information. This ability is usually associated with direct marketing campaigns such as telemarketing, e-mail marketing, or direct mail. A list of those who have opted-out is called a...

 deadline from November 12, 2008 until December 5, 2008, and made corresponding changes to other dates affected by the revised opt-out deadline. Those that choose to opt out will not be able to participate at a later date. Any debt issued on or before June 30, 2009, will be fully protected through the earlier of the maturity of the debt instrument or June 30, 2012.

The Final Rule was published November 21, 2008. According to the official November 21, 2008 FDIC press release, "We are confident that the changes our Board approved today will create significant investor demand, and dramatically reduce funding costs for eligible banks and bank holding companies," said FDIC Chairman Sheila C. Bair
Sheila C. Bair
Sheila Colleen Bair was the 19th Chairperson of the U.S. Federal Deposit Insurance Corporation . She was appointed to the post for a five-year term on June 26, 2006 by George W. Bush. Bair served as a member of the FDIC Board of Directors through July 8, 2011.-Early life:Bair is a native of...

. "I expect that the industry will take full advantage of this guarantee. I'm confident that the program—working in complement with the Treasury's Troubled Assets Relief Program
Troubled Assets Relief Program
The Troubled Asset Relief Program is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008...

 and the Federal Reserve's Commercial Paper Funding Facility
Commercial Paper Funding Facility
Commercial Paper Funding Facility was a system created by the United States Federal Reserve Board during the Global financial crisis of 2008 to improve liquidity in the short-term funding markets. The CPFF was created on October 27, 2008 and funded a special purpose vehicle that purchased...

 —will achieve its intended purpose to help insured banks increase lending—in a responsible way—to consumers and businesses."

Components

The Temporary Liquidity Guarantee Program, 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. FDIC insured entities may opt out of either program. http://www.fdic.gov/regulations/resources/tlgp/optout.html

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)

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. The guarantee was then extended an additional six months, through December 31, 2010. 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.
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