Alert September 15, 2009

FDIC Approves Phase Out of Temporary Liquidity Guarantee Program - Debt Guarantee Program to End October 31, 2009

The FDIC adopted a Notice of Proposed Rulemaking (the “NPR”) that reaffirms the expiration of the Debt Guarantee Program (the “DGP”) of the Temporary Liquidity Guarantee Program (the “TLGP”) on October 31, 2009.  In October 2008, the FDIC adopted the TLGP as part of a coordinated effort by the FDIC and other federal agencies to address disruptions in credit markets and the resultant inability of financial institutions to obtain funding and make loans to creditworthy borrowers.  For more on the TLGP program generally please see the October 14, 2008 Alert and the November 25, 2008 Alert.  The FDIC had previously extended the DGP for four months, and recently extended the Transaction Account Guarantee Program of the TLGP for six months.  For further discussion on the previous extension of the DGP, please see the February 17, 2009 Alert; and for further discussion on the extension of the Transaction Account Guarantee Program please see the September 1, 2009 Alert.

The NPR contemplates two alternatives for the expiration of the DGP.  Under the first alternative, the DGP would expire as planned on October 31, 2009.  All insured depository institutions and other qualifying entities currently participating in the DGP would be permitted to issue FDIC-guaranteed senior unsecured debt until October 31, 2009, with the FDIC’s guarantee expiring no later than December 31, 2012.  Under the second alternative, the DGP would expire on October 31, 2009, as in the first alternative.  However, the FDIC would establish a limited emergency guarantee facility that would permit insured depository institutions participating in the DGP and any other entities that have issued FDIC‑guaranteed senior unsecured debt by September 9, 2009 to apply to the FDIC to issue FDIC‑guaranteed debt for an additional six months.  To use the emergency guarantee facility, applicants would be required to demonstrate their inability to issue non‑guaranteed debt or to replace maturing debt as a result of market disruptions or other circumstances beyond their control.  Any application under the emergency guarantee facility would require the approval of the Chairman of the FDIC, after consultation with the FDIC Board.  Applicants approved by the FDIC would pay an annualized participation fee of at least 300 basis points on the FDIC-guaranteed debt issued under the emergency guarantee facility and would be subject to other conditions imposed by the FDIC.  As with the first alternative, the FDIC’s guarantee would expire no later than December 31, 2012.

The FDIC has requested comments on the two proposed alternatives and will accept such comments for 15 days following the publication of the NPR in the Federal Register.