Davis Polk & Wardwell Newsflash

FDIC Extends Opt-out Period for Temporary Liquidity Guarantee Program until December 5th

November 4, 2008

The FDIC’s Temporary Liquidity Guarantee Program (the TLG Program), which guarantees certain senior unsecured debt issued by eligible banking entities and provides unlimited deposit insurance through 2009 for certain non-interest bearing transaction accounts, became effective on October 14, 2008.  Eligible entities have been covered by the TLG Program since October 14, 2008, free of charge, and originally the FDIC had set November 12, 2008, as the deadline for eligible entities to decide whether to stay in or opt out of all or part of the TLG Program.  The FDIC has since issued an immediately effective interim rule on the program with a 15-day comment period, which ends on November 13, 2008.  The end of the comment period one day after the original opt-out deadline created an uncomfortable situation for many in the financial sector who would have been forced to make the decision whether to opt out or not without knowing what the contours of the final rule would be, including the extent to which the FDIC ameliorates some of the technical difficulties, especially with the debt guarantee, that have been identified by the industry.

Yesterday, the FDIC remedied this problem by announcing, in a press release and accompanying Financial Institution Letter, that it is extending the opt-out period until December 5, 2008 According to the FDIC, the new deadline will allow institutions to “fully consider” the final rule before making their decision, which implies that the FDIC will release the final rule several days before December 5, 2008.

Certain further clarifications were also contained in the press release and Financial Institution Letter:

  • Any eligible entity opting out of the TLG Program on or before December 5, 2008, will not have to pay any fee under the program.
  • The election form for opting into or out of the TLG Program will be available beginning November 12, 2008, and must be submitted via FDICconnect.
  • Eligible entities that do not opt out of the debt guarantee program must report the amount of outstanding senior unsecured debt as of September 30, 2008, that is scheduled to mature on or before June 30, 2009.  Previously, participating entities had to report no later than November 12, 2008.  Although not explicitly stated, the new deadline is presumably December 5, 2008. 
  • The deadline for compliance with certain disclosure requirements has been extended from December 1, 2008 to December 19, 2008.  The following disclosure requirements were originally set to start December 1, 2008: (1) Each institution participating in the debt guarantee must clearly identify, in writing and in a commercially reasonable manner, to any interested lender or investor whether or not the debt it is offering is FDIC-guaranteed, and (2) every FDIC-insured depository institution must provide, in the lobby of its branches and main office, a notice of whether it is participating in the transaction account guarantee, and if participating, also that funds held in non-interest-bearing transaction accounts are fully FDIC-insured, and that accounts subject to a sweep or other funds transfer or reclassification to an interest-bearing or non-transactional account void the FDIC account guarantee.  Before that date, “adequate” disclosure had to be made in a “commercially reasonable” manner.  In addition, December 1, 2008, had been the date used in the interim rule for participating institutions’ notification to the FDIC of any guaranteed debt issued from October 14, 2008, through, and still outstanding on, November 12, 2008 (now presumably December 5, 2008), even if it is zero, accompanied by a certification by the institution’s CFO or equivalent that, at each point in time, the guaranteed debt did not exceed that institution’s guaranteed amount limit.  We assume that the new December 19, 2008, deadline will apply to this notification requirement as well.

If you have any questions about the matters covered in this newsflash, please contact one of the lawyers listed below or your regular Davis Polk contact:

Luigi L. De Ghenghi, Financial Institutions
phone 212-450-4296 | email luigi.deghenghi@dpw.com

Margaret E. Tahyar, Financial Institutions
phone 011-33-1-56-59-36-70 | email margaret.tahyar@dpw.com

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